Sunday, December 31, 2006

New Blogger

I've upgraded to the new version of Blogger. Please advise of any problems you encounter. I've just begun exploring the new features, and will comment on anything remarkable.

Friday, December 29, 2006

May Jambhala Favor You in the New Year

Earlier this month, Jambhala, the Tibetan Buddhist deity of wealth, adorned a thoughtful article on the nature of giving by Holland Cotter in The New York Times ($).

“Generosity means different things to different people,” writes Cotter. “For some it’s a fixed sum, a payment of moral dues; an act of charity. For others it’s qualified; a negotiated transaction: I will do this for you now if you will do that for me later. For still others it is a frame of mind, an ethical condition, a sustained discipline.”

Jambhala, I gather, is meant to remind us that wealth is good, but only as a means to an end. Prosperity means we worry less about the next mortgage payment. That should free us to concentrate more attention on matters spiritual.

So here's hoping Jambhala brings you a wealthy new year. Just don't mistake him for the guy who said “greed is good.” Cotter warns that Jambhala “is part of an elaborate system of karmic checks and balances in which avarice is inevitably punished, by Jambhala himself in payback mode, and acts of selfless generosity may actually win you the jackpot.”

Thursday, December 28, 2006

The Longer This Estate Squabble Lasts, the Richer the Heirs Get!

What did people do before television? They read The Saturday Evening Post. And they cherished the Americana pictured on the Post's covers, most famously by Norman Rockwell.

Rockwell and the Post's art director, Ken Stuart, became good buddies. Over the years Stuart took more than a dozen Rockwell paintings home with him.

So what happens now that Post covers by Rockwell are worth millions? An estate battle that seems to have everything, including an elderly, "cognitively impaired" testator, three feuding sons, and charges that one son dipped into the estate to live well at his siblings' expense.

Plus a unique feature. according to this report in The New York Times. Though assorted lawyers are surely getting richer as the fight drags on, so are the three feuding heirs, thanks to the skyrocketing value of Rockwell's Post cover paintings, such as "Saying Grace," shown here.
When the urbane Mr. Stuart died in 1993, he left everything to his three sons — Ken Jr., William and Jonathan — in equal shares. The artwork was the crown jewel of an otherwise middle-class man’s estate, and by all rights, dividing three paintings among three brothers ought not to have been hard.

But two of the brothers, William and Jonathan, have spent 13 years fighting in court against their older brother, Ken Jr., saying that he took advantage of their ailing father, forcing him to sign papers to gain control of the entire fortune. The younger Stuarts charge that Ken Jr., who has been self-employed since 1991, used estate assets to enrich himself at their expense and support a lifestyle that included alimony for his first wife, a $5,000 Rolex for his soon-to-be second wife, $44,500 for a cello and bow for his daughter, and a $16,000 time-share for himself in New Orleans.

A judge ruled largely in Jonathan and William’s favor in 2004, but Ken Jr. has appealed. He contends the money he took was “for services rendered” and has also filed for bankruptcy protection. The only way his brothers will get paid, he says, is by selling the paintings, which they are resisting.

This epic family feud has ambled through five different courts, piling up more than 20,000 pages of documentary evidence. But unlike other situations in which litigation begets litigation and only the lawyers win, the longer the brothers squabble, the richer they all get, as the art increases in value. Last month, the owner of “Breaking Home Ties,” thought to be the second-most popular Rockwell cover after “Saying Grace,” had it auctioned by Sotheby’s. The painting fetched a record $15.4 million.
The remnants of the Curtis Publishing Company must have changed hands more than once since the Post's heyday. Some years back, the current owners sought to recover the paintings Rockwell had presumably sold to the Post's publisher. Too late, says the NY Times: "In September, a federal judge said that Curtis had waited too long to cry foul . . . ."

Saturday, December 23, 2006

“A Pear Tree! Darling, Wasn't That Expensive?”

The gifts listed in "The Twelve Days of Christmas " keep getting pricier, according to this news item:
Each year, PNC Wealth Management, based in Pittsburgh, tabulates how much it costs to acquire the gifts listed in the song, using a Christmas Price Index that typically mirrors the federal inflation-tracking Consumer Price Index.

This year — no surprise — the song’s gift list is more expensive than ever, mostly because the leaping lords, piping pipers, drumming drummers and dancing ladies ran up the bill.

It was the first time in nine years that the rise in labor costs outstripped inflation, said Jeffrey N. Kleintop, PNC’s chief investment strategist, who oversees the index.

“After years of stagnation, wages for skilled workers, including the song’s dancers and musicians, have increased as the labor market has tightened,” Mr. Kleintop said.

The 12 gifts would cost a total of $18,920.59, up 3.1 percent from last year. That is less than the 6.1 percent rise chalked up last year over 2004, though, when the threat of avian flu kicked fowl prices up.

Marketing note: PNC Wealth Management gets a good bit of free brand exposure from this annual survey of Christmas prices. Sometimes a little whimsey pays off in ink, airtime and pixels.

Who is Fiction's Best Known Executor?

Come now! 'Tis the season when the answer should be at the tip of your tongue:

"[Jacob Marley's] sole executor, his sole administrator, his sole assign, his sole residuary legatee, his sole friend and sole mourner" was . . . Ebeneezer Scrooge.

Flinty old coot, Ebeneezer Scrooge. Happily, the Christmas spirit(s) set him right.

"It was always said of him," Dickens tells us, "that he knew how to keep Christmas well, if any man alive possessed the knowledge.

"May that be truly said of us, and all of us!"

Tuesday, December 19, 2006

The English Gave Us More than Plum Pudding


During the early 1500's in England landowners found it advantageous to convey the legal title of their land to third parties while retaining the benefits of ownership. Because they were not the real "owners" of the land, and wealth was primarily measured by the amount of land owned, they were immune from creditors and may have absolved themselves of some feudal obligations. While feudal concerns no longer exist and wealth is held in many forms other than land (i.e., stocks, bonds, bank accounts), the idea of placing property in third party hands for the benefit of another. This is the idea of a trust which has survived and prospered.

The illustration is from The New York Public Library Digital Gallery.

The text is clipped from the Trusts and Estates overview at Wex, the legal enclycopia and dictionary sponsored by The Legal Information Institute at Cornell. At this time of year, Wex would not object if you chose to make a donation to support their collaborative effort.

Good news on the GLB front

"GLB" stands for Gramm-Leach-Bliley, the legislation that purported to level the playing field in the financial services industry. Based upon that authority, the SEC in 2001 proposed to begin regulating the trust industry. An outcry ensued.

Trust Updates reports good news today. Responding to Congressional push-back, the SEC has relented, and trust departments can go about their fiduciary business in their traditional manner.
The proposed rules would allow a bank, subject to certain conditions, to continue to conduct securities transactions for customers as part of its trust and fiduciary, custodial and deposit "sweep" functions, and to refer customers to a securities broker-dealer under a networking arrangement.

Copies of the proposed rule are available at http://www.sec.gov/rules/proposed/2006/34-54946.pdf and at http://www.sec.gov/rules/proposed/2006/34-54947.pdf .

Monday, December 18, 2006

Life settlements in the news

So you've made it to retirement, you don't really need that $2 million insurance policy to protect your heirs anymore, but what can you do with it? Sell it to rich investors, such as Warren Buffett or a hedge fund, reports the New York Times.
The practice is known in some circles as "life settlements," and should not be confused with "viatical settlements" of life insurance. The latter involve terminably ill persons who wanted to cash out their life insurance to meet medical payments. One useful medical advance and suddenly the viatical settlement market has many disappointed investors, if it means that insureds move from "hopeless" status to "will remain alive indefinitely." With life settlements, the insureds must be healthy, putting the purchases of the insurance policies on a sounder actuarial footing.

For insureds, a life settlement means a more financially secure retirement. The investors take over premium payments, collect the proceeds eventually, and expect to have an above-market rate of return.

Sounds like a win-win, but then we get to the insurance companies. The dirty little secret of the insurance industry is that most life insurance policies never pay off, which is why the premiums can be so low. Policies that investors take on won't be lapsed, and that development has not been in the equation. Says the Times:

Life insurance companies, in particular, rely on policies lapsing before the policyholder dies. Last year, for instance, insurance companies reduced their financial exposure by $1.1 trillion when 19.8 million policyholders stopped paying premiums, according to the Insurance Information Institute. In comparison, the industry paid death benefits on only 2.2 million policies.

If those lapsed policies had been sold to investors rather than canceled, insurance companies could have eventually paid out as much as a trillion dollars, say analysts.

Well, it's hard to have a lot of sympathy for the insurance companies. But the Times also reports on speculator-initiated life insurance, or "spin-life" policies, in which investors lend money to the insured to buy policies, with an agreement to buy the policy back at a stated date in the future. That strategy would seem to me to be vulnerable to the insurable interest rule.

Saturday, December 16, 2006

The Fight for HNW Referrals Heats Up

Where do new clients for a bank's trust services or fee-based investment management come from?

Often, from the ranks of retail banking customers referred by customer service representatives or tellers.

Financial services marketers work hard to promote the referral process. See, for example, Winning Trust, mentioned by Jim Gust in a recent post.

The bank's commissioned sales force for annuities, mutual funds and other investment products also seeks new clients, and also relies heavily on referrals.

So far, many banks have minimized conflicts by dividing referrals according to wealth level. Brokers selling on commission get the emerging affluents. Fee-based wealth managers get the customers with net worths of $1 million or more.

Under new rules relating to bank broker provisions of the Securities Exchange Act of 1934, proposed by the SEC, the fight for HNW prospects may heat up:
The Exchange Act provides that banks may pay unregistered employees “nominal” incentive compensation for making these referrals. The proposed rules would define “nominal,” “incentive compensation,” and certain other terms. To accommodate banks’ customary bonus plans, the definition of “incentive compensation” would specifically exclude qualifying discretionary compensation paid under these bonus plans. The proposal also would allow banks to pay more than nominal fees for referrals of certain institutional customers and high net worth customers to a broker or dealer, if the bank and broker-dealer satisfy conditions to protect these customers.
Investment News notes that trust departments will benefit from another provision:
The proposal, which affects thousands of banks, also ensures that banks will continue to be able to accept 12(b)-1 fees for mutual funds used in defined contribution retirement plans managed by bank trust departments.

Friday, December 15, 2006

Good News for Wealth Managers

From an article in today's New York Times concerning data from the 2007 Statistical Abstract:
More than half of American households owned stocks and mutual funds in 2005. The 91 million individuals in those households had a median age of 51 and a median household income of $65,000.

That might help explain a shift in what college freshmen described as their primary personal objectives. In 1970, 79 percent said their goal was developing a meaningful philosophy of life. By 2005, 75 percent said their primary objective was to be financially very well off.

Thursday, December 14, 2006

Maybe Your Bank Isn't So Bad

You say your bank's clients are getting restless? Since early 2001, no client phone call has actually been answered by anyone with a pulse? Here's a story from The Spectator to show them things could be . . . worse.

Hedge Funds Move Upmarket

Report from Reuters: "The minimum net worth an investor must possess to be allowed to invest in hedge funds would more than double to $2.5 million in investments, excluding a personal residence, under a measure proposed by the U.S. Securities and Exchange Commission on Wednesday."

Will the higher minimum actually enhance hedge-fund ownership as a status symbol?

Wonder if the higher minimum will apply to Goldman Sachs’ new "virtual" fund of hedge funds? The firm's Absolute Return Tracker Index aims to replicate hedge fund returns for an annual fee of 1.01%. According to the chatter on CNBC, private bankers should be salivating at the chance to package the ART index.

In any case, hedge funds continue to grab the public fancy. Why else would John Wiley & Sons have published "Hedge Funds for Dummies"?

You and your not-dumb clients will find a decent briefing on the subject here, written by Lord William Rees-Mogg, the former editor-in-chief of The Times.

Tuesday, December 12, 2006

Is This Any Way to Market Revocable Trusts?

When living trusts became an estate planning must, bank customers needed to name a successor trustee. Bank trust departments, by and large, were not eager to fill the bill. They were looking for immediate-fee business, not long-term relationships. Self-trusteed trusts (standby trusts, banks called them) offered, at best, only a custody fee.

Here's a different kind of trust company. In this clear, informative web page, New Convenant Trust Company treats self-trusteeship as the default option:
What is a Revocable Trust?

A revocable trust is created to accept ownership of your assets during your lifetime. This is appealing for several reasons:

• You may retain complete management, control, use and distribution of your trust assets. If you prefer, you can designate someone else to serve as trustee for you.

• You select an alternative trustee in the event you become incapacitated. The trustee will manage the trust funds for you. The trust should clearly state how to determine incapacity.


• You can add or remove assets from the trust or change any of the terms at any time as you determine in your sole discretion.


• At your death, the trust becomes irrevocable and provides for the distribution or the continued management of the remaining assets in the trust by the successor trustee. The distribution is private; no involvement of probate.
Admittedly, New Covenant Trust Company is not your usual, for-profit, trust institution. A wing of the Presbyterian Foundation, the company specializes in charitable remainder trusts and such. (In the case of an everyday revocable trusts, New Covenant requires the grantor to leave 10% of the trust fund, up to $250,000, to a Presbyterian or Presbyterian-related charity.)

Should more bank trust departments be marketing standby trusts as a primary product?

Before you answer "No," remember that sometimes the pros are wrong and the customers are right. Steve Jobs once thought a video iPod was a really stupid idea.

Monday, December 11, 2006

Childless? Don't be Caught Dead in Texas!

Merrill Anderson's Texas clients used to tell me how hassle-free probate was in that state, thanks to independent administration of estates.

Texas needs more hassles, according to this article in the Austin American-Statesman.

Theme of the special report : "Texas estate laws make stealing from the dead an easy crime."

Sunday, December 10, 2006

When sunk costs trump anchoring

For behavioral finance fans, the NYTimes magazine's annual review of ideas includes this unexpected insight:Low Starting Prices Lead to High Auction Sales.

The reason seems to be that low initial prices attract more bidders, and more bidding means that more people have invested more time in the auction. That, in turn, justifies the higher price in the successful bidder's final offer.

Saturday, December 09, 2006

Expanded HSAs

The tax extenders just enacted by Congress lifts the cap on HSA contributions and removes the link to the deductible of the health insurance plan of the HSA owner. Details here ($). The new approach means that the HSA can really be a savings account, not just a spending management account. Also, there's a once-in-a-lifetime chance to fund an HSA with a tax free transfer from an IRA. That means that otherwise taxable IRA money can become tax free.

There's something here that I'm not getting. Couldn't this change effectively make all medical expenses fully deductible, provided only that they are channeled through an HSA? I guess not, if an employer's health program is not structured as an HSA. Still, the 10-year cost of eliminating the cap on deductions is a scant $712 million, which must assume that no one will be switching to the HSA format in the future. Why won't everyone take that approach now?

In a contrasting revenue projection, allowing the deduction of sales taxes in those states without an income tax for only two years, 2006 and 2007, has a ten-year cost of $5.5 billion. That seems way too high.

I'll be watching for the new HSA marketing plans.

Friday, December 08, 2006

Tax extenders pass in the House

By a vote of 367 - 45 the House passed and sent to the Senate H.R. 6111, which includes the tax extenders, some energy provisions and Medicare reforms. Of course, we've been here before.

After the Crash: How Wall Street Preserved a Football Legacy

All the Wall Streeters didn't jump out windows in 1929. The fatter cats hung around waiting for business to pick up.

Many joined the new Downtown Athletic Club. In the Depression years the club became a popular place to work out, socialize and sit around cursing FDR's New Deal.

Club members became become fervent fans of college football, thanks to a touchdown club organiized by the club's athletic director. When the club decided to award a trophy to each year's best player, members proposed naming it for the athletic director, who had been a famed coach in his day.

He didn't think much of the award idea and declined.

After the athletic director's death in 1936, the Downtown Athletic Club named the award for him anyway.

The Heisman trophy will be awarded tomorrow for the 72nd time.

* * *

When the Senior Assistant Blogger's daughter entered Oberlin, he was astonished to learn that Heisman had been the college's first coach.
John William Heisman (1869-1936) was the first professional football coach at Oberlin College. In 1892, he led the Yeomen football team to a perfect 7-0 record. In those days of high-powered football, the '92 Oberlin grid squad defeated both Ohio State and Michigan . . .
Heisman coached lots of other places. Along the way he helped invent the game.

Most notably, says today's New York Times, he may have saved the game from self-destructing.

To prevent football from deteriorating into nothing but savage scrimmaging, Heisman coaxed the Father of the Game, Yale's sainted Walter Camp, into adopting the forward pass.

Give a cheer, then, to the battered Wall Streeters who raised their depressed spirits by following football. And tell the young footballers in your family to read up on Heisman. He's worth remembering.

Thursday, December 07, 2006

Hedge Funds Need “Christmas Miracle”

All hedge fund managers want for Christmas is a return equal to the S&P 500, according to this FINalternatives item:
[H}edge funds will need a Christmas miracle to reach double-digits this year, as the [Hedge Fund Research] HFRX Global index sits at 7.56% year-to-date. The broad-market S&P500, on the other hand, is up 12.2% YTD.

On the bright side, only one of the eight strategies tracked by HFR was in the red last month: equity-market neutral, which dipped 0.53% and has returned only 3.82% YTD.

Old Congress Ends with a Whimper (and Tax Extenders?)

At least the Lame Duck Congress is staying in character. After fooling around aimlessly during the estimated 100 days or so that Congress labored in Washington, D. C. this year, the members are now prepared to leave town tomorrow.

The tax extenders? The bill has been festooned with unrelated goodies, including measures relating to oil and gas royalties and timber.

Nevertheless, on CNBC, the Boston Globe's Rick Klein predicts that enough junk will be pruned from the bill to allow the extenders to pass.

Hanging on to the old money

Jim Macdonald commented here on the importance of private banking to the the future Bank of New York Mellon. Today's Wall Street Journal confirms his observations with this short piece ($), which, although interesting, doesn't really have much news in it. Perhaps it is the product of some diligent PR people.

Mellon's wealth management group oversees some $92 billion for wealthy families, while BoNY manages $60 billion. None of the client contact folks at either bank are in jeopardy from the merger, according to the article, because keeping that staff is one key to keeping clients happy. There's already enough pressure from the younger generation for finding new financial advisors without increasing the churn of the bank's contact people.

"It is a goal of every financial adviser, every private bank, every community foundation and every charity to retain a connection to the next generation to help them achieve their goals," says Paul G. Schervish, director of the Center on Wealth and Philanthropy at Boston College.

In a conference call with investors, Robert P. Kelly, Mellon's president and chief executive, said the banks would work hard to keep clients through the merger: " 'Lose no customers' is our rallying cry."

Tuesday, December 05, 2006

Trust Advertising in 1956

From a November, 1956 New Yorker, here's a glimpse of what a typical trust ad from a NY trust institution looked like in those days.

The Guaranty ad gives you a greater appreciation of the creativity that went into the Chase nest egg ads from the same era, as seen here and here.

No wonder those old Chase nest-egg ads now sell as collectibles on eBay.

Monday, December 04, 2006

This is the week for the tax extenders

Tax Notes Today ($) reports this morning that Congress is expected to wrap up its work this week. The continuing resolution funding the government expires on December 8; rather than try to finish the appropriations bills before the holiday, the Republicans are expected to punt the job to January, to the next Congress.

A new extenders bill needs to be introduced and passed in the House, before going on to the Senate. Favored provisions will get just two years of life, that is, retroactively for 2006 and ahead for only 2007. Some trade and health-related provisions may be included in the bill as well.

As to the Alternative Minimum Tax for next year, the silence is deafening, in contrast to last year at this time.

The Bank of New York Reinvents Itself

Today The Bank of New York announced the acquisition of Mellon Financial.

Generations ago, BONY maintained a strong presence in trusts and wealth management. Lately the bank has been best known for its corporate services.

Earlier this year, BONY divested its retail branches in exchange for Chase's corporate trust business.

Now BONY is opening new private banking offices, pretty well blanketing the greater New York metropolitan area, plus outposts in Florida and Boston.

The bank has also launched an award-winning ad campaign for private banking. The campaign plays up BONY's long history, such as this bit of trust lore from the ad running in today's New York Times:

“Generation after generation, The Private Bank of The Bank of New York has been acquiring financial wisdom and serving its clients with unwavering commitment.

“This is the home of the nation's first trust, created for the wife and seven children of our founder, Alexander Hamilton. And this is where we have continued to serve our clients and their families ever since.”

Wednesday, November 29, 2006

Trusts for Pets Come to Ohio

Trusts for pets come to Ohio next year.

As reported here, dogs and cats in Columbus, Oberlin or Piqua no longer will face poverty when their owners predecease them.

For a Hefty Inheritance, Think Thin!

Thin people tend to accumulate more wealth than the obese, this New York Times article reports.

Obesity results in shorter life spans. And “sociologists have long noted that in developed countries, the higher-status people tend to be thin and the lower- status ones are fat.”

Less easy to explain is this finding: “Thin people tend to receive bigger inheritances.”

Do-It-Yourself Hedge Funds

How does a hedge fund that outperforms most but only charges 0.36% a year strike you? As you'll read here, the only catch is the $20 million minimum:
The program, FundCreator , designed by Professor Harry Kat of the Cass Business School at the City of London University with PhD student Helder Palaro, lets investors design futures trading strategies similar to hedge funds called synthetic funds that use 78 futures contracts to imitate various risk-return profiles, the reports said.

Hedge funds typically charge a 2% fee per year, in addition to 20% of profits, and funds of hedge funds add a 1% of assets fee and 10% of profits fee, Financial Times said.

The simulator charges 0.36% a year and a $5,250 set-up charge, the reports said.

The minimum investment is about $20 million, Hedge World reported, due to the large size of most of the contracts. About 10 investors are testing the system.

Professor Kat says that his system outperformed 82% of funds of hedge funds.

Tuesday, November 28, 2006

A U.S. Bank for Bond, James Bond?

Wasn't that 007 skiing at Aspen? Mr.Bond must have stopped by Denver to consult his confidential banker at American International Depository and Trust.

As reported in the What's Offline column in The New York Times, E. Jerry James has founded what's said to be the first private bank for foreigners in the United States. He created the bank to take advantage of Colorado’s Foreign Capital Depository Act of 2001.

From the point of view of the bank's foreign clients, AID&T will be "off shore":
As a U.S. banking institution, we provide access to investments in various asset classes to international families and businesses. These families and businesses will enjoy the added benefits of confidentiality, asset protection, and tax mitigation as well as trust services and family office services, all in the most politically and economically secure country in the world.
"Tax mitigation." Sure has a nice ring to it!

Monday, November 27, 2006

Why So Many “Emerging Affluents” Never Emerge

Google the news for "ponzi scheme." A whole bunch of items pop up, reporting on Ponzi schemes from hither and yon, each in some stage of investigation, prosecution or recrimination.

Yesterday's New York Times took a long look at the phenomenon. Hard to write much new about the urge to get rich quick and the costly consequences. Still, it's good to be reminded of the basics:

• Ponzi's heirs can tailor a scheme to trap people from any walk of life or education level.

• Many Ponzi schemes are "affinity frauds," perpetrated in clubs, churches or other groups where one "client" will quickly tell friends about the chance for easy money.

• Victims of Ponzi schemes never heard of diversification. If they have a $125,000 inheritance or $575,000 needing investment, it all goes to the scheme. All of it!

Carlo Ponzi, your name will live on until human nature changes.

Wednesday, November 22, 2006

Thoughts for Thanksgiving

Ben Pease of TD Banknorth appears on the byline of this monthly commentary.
Thanksgiving is quickly approaching. In many homes, it is a time for food, family and football. For turkeys, on the other hand, it's just another attempt to make it through the day. Survival isn't easy for the turkey, regardless of the season. All year, turkeys must avoid more than simply hunters, holidays and carnivores to survive; they have to be smart and keep their cool. One long-held wives' tale about turkeys is that they can actually drown by looking upward too long while it is raining. Or, that they are very prone to sudden heart attacks if startled or overly excited. True or not, life is certainly not easy for the turkey.

Well, some resurrected "turkeys" are beginning to come back to the financial markets. With the Dow Industrial Average breaking through new highs and climbing toward 12,200, many investors are dusting off their overabundance of optimism, dating back to the late 1990s. . . . Could we be heading back toward the "hot sector of the day" on the evening news and investment advice from the local barber? I hope not. Remember, stay smart, keep your wits, and don't drown in the optimism of others by continually looking up.
• • •
We have a meaningful - if not somewhat tormenting - tradition at my home on Thanksgiving Day. As the food hits the table and our stomachs are growling in anticipation, we pause for a few moments to allow each person to declare what they have been thankful for over the past year. Generally, it includes things such as appreciation for family, new children, a promotion or a newfound relationship. I can't remember a time when I've heard someone say they were thankful for the recent bond rally, the FOMC decision, or XYZ finally beating analyst estimates. It is interesting, in this age of long hours and long days; the most valuable things in life are still free. Have a wonderful Thanksgiving. . . .

Tuesday, November 21, 2006

With the "ownership society" vanishing, can we create a "fiduciary society"?

From Jim Webb's Op-Ed in The Wall Street Journal:
When I graduated from college in the 1960s, the average CEO made 20 times what the average worker made. Today, that CEO makes 400 times as much.
From a speech by Vanguard founder John Bogle, accepting a leadership award in Colorado:
[T]he “ownership society”—in which the shares of our corporations were held almost entirely by direct stockholders—gradually lost its heft and its effectiveness. It is not going to return. In its stead, a new “agency society” has developed, with financial intermediaries controlling the overwhelming majority of shares. (Since 1950, institutional ownership has risen from 8 percent of U.S. stocks to 68 percent; individual ownership has dropped from 92 to 32 percent.)
Bogle sees the imperial compensation packages of CEO's (not to mention their back-dated stock options) as symptoms of deep trouble in the investment world.

Fox are roaming the farmyards, and nobody (certainly not shareholders' "agents") guards the chicken coops.

Ideally, the solution might be to go back to direct investments in stocks and bonds for every portfolio over $100,000. Get rid of the passive intermediaries. Not likely.

More likely is increased government regulation, leading us nearer and nearer to state capitalism. (China and Russia will be glad to give us pointers.)

Can't there be a better way? All ideas on how to move from an "agency society" to a "fiduciary society" will be gratefully received.

Monday, November 20, 2006

How much can be earned from collecting state quarters?

Earnings, in this case, means profits by the U.S. Mint from the sale of the state quarters to collectors, that is, the value of currency taken out of circulation less the cost of production. Uncle Sam has "earned" $4 billion to $5 billion so far, the New York Times reports. The program has worked so well that it's being extended to the one dollar coin. By February of 2007 Sacagawea will be joined first by George Washington, then all the rest of the dead Presidents on a schedule that extends to 2016.

I think it's unfortunate that the new Presidential dollars will be no larger that the Sacagawea, which is too close to the quarter in size to be quickly distinguished. On the other hand, I expect better acceptance of Presidential dollars as real money.

I wonder whether any collectors have profited from collecting the state quarters thus far?

The Trust Officer: Most Versatile of Bankers

Google "trust officer" as we did this morning and you'll be directed to What does a Trust Officer do? at the web site of Baylake Bank in Wisconsin.

Pay them a virtual visit. Trust officers in the Green Bay area need all the sympathy they can get after yesterday's game: Patriots 35, Packers zip. Yikes!

Estate Planning for Persons With Less Than $5 Million

Jonathan Blattmachr, Georgiana Slade and Bridget Crawford provide some useful observations and eleven strategies in this downloadable article.

Sunday, November 19, 2006

Bulls, Bears . . . and Lame Ducks

From Week in Review in The New York Times:

[T]he political phrase of the moment is actually derived not from the hunt for waterfowl, but for riches. The Oxford English Dictionary — which defines the term as “a disabled person or thing: spec. (Stock Exchange slang): one who cannot meet his financial engagements; a defaulter” — traces its origins to the London stock market in the 18th century, where broke investors were said to waddle out the doors onto Exchange Alley. Horace Walpole, the Gothic author and the fourth Earl of Orford, was so tickled by the expression that in 1761 he made the first known written reference to it, in a letter to Sir Horace Mann that asked, “Do you know what a Bull, and a Bear and Lame Duck are?”

Friday, November 17, 2006

Hedge Funds: Where are the Customers‘ Yachts?

That's the question raised by The Economist in this article.

The editors of The Economist seem to have difficulty believing in Tinker Bell or hedge funds. Still, the article offers useful stats and raises a pertinent question: How long will investors pay alpha prices for beta performance?

Quite a while, probably. The article concludes that hedge funds' boosters and detractors both exaggerate:
Hedge funds are not the panacea for every pension-fund deficit, nor are they the cause of every ill in the financial markets. They are like a fast-growing adolescent, sometimes boisterous, sometimes clumsy but still developing. Where skill does exist, clients will probably find that managers get the bulk of the benefits. But as long as clients blindly believe in that skill, they will pay for the hedge funds' yachts.
For a somewhat more positive take on hedge funds, see this interview with Steven Drobny, President, Drobny Global Advisors.

Drobny believes the astonishing expenses faced by hedge-fund investors pose no problem:

"Investors are allowed to choose what they want and if they don't like something they can vote with their feet."

About that yacht

If you've followed Ben Stein's advice and struck it rich running your own hedge fund, you can pick up the cool old yacht above for a mere 900,000 euros. German-built in the early 1920s, the vessel later served as the official presidential yacht of Generalissimo Franco of Spain.

Fun with numbers

Just back from the New England trust conference, where the keynote speaker made the following observations (numbers are approximate):

100,000,000—number of U.S. households
400,000—number of licensed U.S. financial advisors
250—households per advisor
$150,000—average investable assets of U.S. households (gross wealth divided by households)
$8,100—median investable assets of U.S. households (50% have more, 50% less).
20,000,000—more realistic prospecting base for financial advisors
50—number of actual prospects per advisor

So that's why selling financial services to the high net worth market has gotten so tough!

Wednesday, November 15, 2006

MIT 23, YALE 22.9

MIT scored a return on its endowment that edged even Yale for the twelve months ending last June. So reports the NY Sun here.

Seth Alexander, a former member of David Swensen's team at Yale, now manages MIT's endowment. Another ex-Swensenite serves as Princeton's wealth manager.

As long as Swensen and his acolytes can produce outsize returns, hedge funds seem destined to remain in style.

Tuesday, November 14, 2006

Hopes for resolution on estate taxes dim

As the lame duck session gets underway, attention has turned to the expired "tax extenders" legislation (including the R&D tax credit and the itemized deduction of state sales taxes). That legislation is presently included in the "trifecta bill" with a number of changes to the estate tax and an increase in the minimum wage. Action isn't expected before December. Though the trifecta bill may not be dead, it's on life support. According to Tax Analysts ($):
[Retiring Ways and Means Chairman] Thomas suggested that any efforts to move estate tax reform this year have finally been put to bed, telling reporters that the rush to wrap up work this year will likely prevent any further debate on the estate tax.

Without completely dismissing the possibility of his chamber once again taking up the trifecta bill this year, Senate Majority Leader William H. Frist, R-Tenn., told reporters earlier in the day it is "most likely" that Congress will act only on the tax extenders during the lame-duck session.
Wasn't it Senator Frist who proclaimed last August that the Senate would never consider the extenders apart from estate tax reform? Yes, it was.

Thoughts for a Taxpayers' Day

Does your local chapter of Save Our Tax Cuts need a little inspiration? Try this from Good joke: Murphy's Lesser Known Laws:
A fine is a tax for doing wrong. A tax is a fine for doing well.
If any chapter members are tempted to perform criminal acts in order to achieve deeper cuts in their taxes, you might call their attention to this law:
When you go into court, you are putting yourself into the hands of 12 people who weren't smart enough to get out of jury duty.
* * *
This month the Lame-Duck Congress goes on a Wild Goose Chase, as one pundit put it. Estate-tax reform is expected to be among the geese that get away. Meantime, here's a paradox to ponder:

If Congress, via the federal estate tax, insists on limiting the assets we can pass to our children and grandchildren, why doesn't Congress limit the liabilities we can pass to them, via federal deficits?

For the sake of our descendants, shouldn't we should replace the federal "death tax" with a federal debt tax?

Wednesday, November 08, 2006

Rumsfeld Out. Estate-Tax Reform In?

By winning control of the House of Representatives (and possibly the Senate), the Democrats sent at least one senior citizen, Don Rumsfeld, into retirement. Have they also brightened the prospects for estate-tax reform? That's the view offered in this USA Today article:
Repeal of the estate tax, a top priority of the Bush administration, doesn't stand a chance with Democrats in control of the House. But the prospects for legislation that would limit the tax to the super-wealthy are much improved, tax analysts say.

Less than 2% of taxpayers pay estate taxes. But for those who are affected, the tax rates are steep: up to 46% on estates that exceed $2 million. Under current law, the amount of assets exempt from estate tax will rise until 2010, when the estate tax will disappear.

Unless Congress acts, though, the estate tax will rise from the grave in 2011, the exemption will drop to $1 million, and the top rate will hit 60%. (This has led some financial planners to dub the 2001 statute the "Throw Momma From the Train Act," because heirs stand to gain the most if their benefactors die in 2010.)

While Democrats have opposed full repeal of the estate tax, many support increasing the exemption amount, says Clint Stretch, managing principal of tax policy at Deloitte Tax in Washington. Rep. Charles Rangel, the New York Democrat who's expected to chair the House Ways and Means Committee, favored estate tax reform as far back as 2001, Stretch notes. "Clearly, he would be supportive of a significant increase in the exemption amount."

Tuesday, November 07, 2006

Winning Trust

I'm back from the Pennsylvania Bankers Trust and Wealth Management conference, held once again in lovely Hershey, PA. Learned a bit more about Milton Hershey and his trusts, perhaps enough to generate a newsletter article for next year.

We premiered a new product, Winning Trust, for raising awareness of the trust department and encouraging referrals of trust prospects within the bank. We first introduced a video training product called Winning Trust nearly 20 years ago, and it was a sensation in its day. The new product is deliverable via computer, as a standalone narrated movie or unnarrated PowerPoint slides.

The reaction from the PA bankers was good, though we had hoped for more. Perhaps people are just harder to impress these days.

A demo of the presentation will likely be posted shortly on the Merrill Anderson web site. I'll add a link for it when it's ready.

Sunday, November 05, 2006

What Happens After a Bank Rips Off Your Grandmother?

A bank annuity salesperson snatches most of Grandmother's money, creating a "disaster" for grandma. Things couldn't get worse, right?

Wrong. Another bank annuity salesperson tries to rip off Mother!

This story, told by Jeff D. Opdyke in his Sunday Journal column, is so sad, and so maddening, that we'll show it to you in full:
More than a year ago, I wrote about my grandmother buying an annuity from a local banker, noting that I viewed the transaction as a financial disaster. This banker persuaded my grandmother to lock up two-thirds of her liquid assets in an annuity.

Based on the contract details, the banker was clearly clueless. My grandmother had one request -- that the proceeds not go in a lump sum to her daughter -- and the banker told her that would be no problem. He was wrong: The contract specifically notes that the beneficiary, my mom, would receive a lump-sum payment upon my grandmother's death.

I told my grandmother that I wanted to help her try to nullify the contract, but she demurred. She has been dealing with this bank branch since the 1970s and didn't want to raise a stink. So I held my tongue.

However, something good arose from this sorry mess. As I wrote in that column, it's incumbent upon us to watch out for our parents and aging relatives when it comes to their big financial transactions. You must talk to them, tell them not to feel pressured by anyone and encourage them to call you before acting on any investment solicitation, particularly for an annuity.

And I'm happy to say my mom did just that.

She heard me talking to my grandmother, and she listened when I gave her the same message. A few months ago she received a large insurance settlement for a back injury, and when she deposited the check, the bank immediately sat her down with an in-house investment peddler who tried to persuade her to put the entire sum (essentially 100% of her liquid assets) into a variable annuity. It would have basically locked up her money for about a decade.

Mom called me from the banker's desk to tell me about what sounded like a great deal to her. I told her the risks and that in her situation it was a terrible idea. She hung up, but then called back when the banker's spiel continued. She put the banker on the phone, and I told him to back down because this annuity was entirely inappropriate for my mom's situation.

He lost the sale.

Just to be clear: I think that for certain people certain annuities can be great tools for retirement-income planning. I expect to use annuities in my retirement to create a pension-like stream of permanent income my wife and I can never outlive.

But that doesn't mean they're right for everyone, and the worst situation is when you find a parent has been sold an annuity that mangles her finances and leaves her feeling insecure.
Grandma's disaster is, of course, banking's disaster. People don't distinguish between bankers and in-bank brokers/insurance agents who sell on commission.

The salesperson with the fiduciary instincts of a mosquito, the stern loan officer and the nice lady in the trust department are equally "bankers" in the public's eyes.

Contest: In 300 words or less, discuss whether selling expensive, inappropriate deferred annuities to credulous senior citizens is in the best interests of a bank and promotes the bank's long-term success.

Prize for the best entry will depend on the quality of thought and expression.

A little repentance wouldn't hurt, either.

Friday, November 03, 2006

Direct Mail, Then and Now

1905: Almost-instant messaging
Came across an odd news item from Norwalk, CT the other day. The Norwalk museum had received the gift of a locally-made product from the early years of the 20th century, a Postal Typewriter.

A what? A Postal Typewriter. For its day, it was leading edge technology:

“In the early 1900s, when the phone was not ubiquitous and telegraphs were inconveniently located outside the home, the mail, or the post, was convenient because messages were delivered three times a day. . . . With a Postal Typewriter, people could write a quick letter -- a post card -- and have it delivered by the day's end. . . .”

The Postal Typewriter didn't last. Telephones, an even more quick and convenient form of communication, made same-day messaging old hat.

It's an old story. New technology drives out the old. Or does it? Often new technology develops problems of its own.

In its heyday, the mid-20th century, telephone service was so universl and reliable you could call the White House and speak with a member of the staff. You could call company presidents and arrange appointments, usually via their secretaries but sometimes with the chief honcho himself.

Today, the wired, household telephone is old tech. Outgoing calls get tangled in a jungle of phone trees. Incoming calls are generally an annoyance.

2006: There's no comparison
How did most communication media turn into such a pain? E-mail comes in a hopeless flood. TV commercials beg to be zapped. And those phone calls.

As a result, The New York Times reports, good old direct mail is making a comeback.
"I would rather get a catalogue over a call during dinner 10 times over,” [Ginger] Stickel, a mother of two young children in Greenwich, Conn., said. “I always open those letters, and sometimes they’re useful.”

Remember when the Internet and online marketing were going to spell the end of the direct mail business? Well, it hasn’t exactly worked out that way.
Turns out that even junk mail is easier to sort through and jettison than e-mail spam. And higher-class direct mail (dare we mention the classy financial newsletters prepared by The Merrill Anderson Co.?) can seem almost luxurious.

“As the world becomes more digital, there is a need for tangible experiences,” says Rob Bagot, executive creative director at McCann Worldgroup San Francisco. “And there’s nothing like a piece of paper.”

Thursday, November 02, 2006

Annuities Explained

Perhaps you're a wealth manager who doesn't use the A-word much. But a client wants a briefing. What to do? You might just print out Mark Trumbull's helpful layperson's guide from The Christian Science Monitor.

Tuesday, October 31, 2006

Witches and Goblins and Hedge Funds, Oh My!

Are hedge funds are too spooky to remain unregulated? That's the growing feeling in Congress and elsewhere, says The Wall Street Journal in today's Review & Outlook column:

“Senate Finance Chairman Charles Grassley is circulating a letter to regulators looking for suggestions on how to regulate hedge funds. He's far from the only one. Connecticut Attorney General Richard Blumenthal is bidding to become the next Eliot Spitzer by doing to hedge funds what New York's AG did to the insurance industry. *** Rumblings can be heard abroad too. The German government wants the G-8 to take up hedge-fund and private-equity regulation. A select committee of the British Parliament is already examining regulations.”

Investment News reports that everybody seems to be getting into the act:

“The Treasury department is leading a task force that is examining the impact of hedge funds on financial markets. The Securities and Exchange Commission, the Federal Reserve and the Commodity Futures Trading Commission are also involved in the inquiry.”

Some Democrats, however, may be soft on hedge-fund regulation. "I don't care if you ride your motorcycle without a helmet," says Rep. Barney Frank. He's expected to head the Financial Services Committee if the Democrats retake the House.

The Wall Street Journal recently asked Michael Steinhardt, the extraordinarily successful hedge-fund pioneer, about regulation. He's agin it:
WSJ.com: So you don't think hedge funds require more government oversight?

Mr. Steinhardt: No, my sense is that regulation will not be constructive in any meaningful way. If you consider the extraordinary expansion of hedge funds to-date, going from a few hundred to estimated 8,000 in a matter of a decade and a half, the number of funds that have created problems, and the number that have been abusive, has been extraordinarily low. If you further say that there is a self-regulatory process here, then hedge funds remain the venue for investors who are, if not sophisticated, at least very wealthy. It seems there are riper areas for regulation than worrying about the free-enterprise choices for wealthy people.

WSJ.com: One concern of regulators is that more and more pension funds are investing in hedge funds, however.

Mr. Steinhardt: There is this broader concern that I acknowledge, but having said that, again, the record to some degree speaks for itself. My sense is that there is clearly no demonstrated need for regulation.
Pension funds and university endowments could be the primary beneficiaries of hedge-fund regulation. High-Net-Worth investors? They'll probably move to greener pastures. On average, hedge fund returns have lagged the S&P of late. And buying a hedge fund doesn't seem so sexy when it's also owned by your brother-in-law's pension fund.

Remember Yogi Berra's oft-quoted remark about a certain restaurant?

"Nobody goes there any more. It's too crowded."

For hedge funds, it may be getting close to Yogi time.

Have a jolly Halloween!


Monday, October 30, 2006

"Guaranteed Lifetime Income," but Where's the A-Word?

Insurance company commercial on Boston radio this a.m. pushed "Guaranteed Income for a Lifetime." What product produces this guaranteed income? The commercial pointedly didn't say.

You can see the problem. In the public mind, the A-word, "annuity," has become firmly attached to investment packages known as deferred annuities.

Maybe we need a new term for immediate annuities?

For certain, immediate annuities are back in style. They fell from favor in the inflationary 1970's, when "fixed income" meant "rapidly shrinking income" in real terms.

Inflation is tamer now, and an endless array of derivitives allow insurance companies to offer a variety of inflation-indexed annuities to those who desire them.

Perhaps the real reason immediate annuities are making a comeback is that traditional pensions have become a vanishing species. By purchasing an immediate annuity, a retiree can gain some of the lifetime security corporate pensions used to provide.

How much should a retiree put into an annuity? As you can read in this Julie Jason column, the answer may be determined by applying a patented formula. Yes, patented.

The U.S. patent was issued to Peng Chen and Moshe Milevsky on their "theory and system for creating optimal asset and product allocations for individual investors looking to finance consumption or generate income during retirement."

Can an intricate formula really apply to situations where much depends on iffy variables such as changing state of health and future estate planning goals? Time will tell.

Corporate Trustees: a View from British Columbia

Stan Rule (what a good name for someone in the legal profession!) from British Columbia posts interesting comments concerning corporate trustees on his Rule of Law blog.

Check out his reasons for naming a corporate trustee:
In some circumstances, you might consider appointing a corporate trustee as the executor of your will, or trustee of a trust you create. For examples,

° You don't have relatives or friends whom you consider suitable for the job.

° Your estate is complex, and you wish to have a trustee with special expertise in financial matters.

° You are concerned about conflicts of interests or disputes between the beneficiaries of your estate.

° You have created trusts that may last for decades, and want to have a trustee that can administer the trusts until they terminate.

° You simply do not want to burden your family with the responsibility.
Note his comments on the loss of localized trust service from large trust companies. Seems Canada is picking up more bad business practices from the U.S.A.

Saturday, October 28, 2006

Providing for a Spendthrift: Annuity or Trust?

From the Ask Encore column in today's Wall Street Journal:
I may end up leaving a substantial sum to a couple of nieces if I die prematurely. One of these nieces is very responsible; however, the other has no financial sense and would squander a lump-sum inheritance. Can I stipulate in my revocable trust that, upon my death, the trustee should purchase an immediate annuity for the spendthrift niece so that her inheritance is doled out over her expected lifetime?

-- Bob Lindinger,
Schenectady, N.Y.

Buying an immediate-fixed annuity, a plain-vanilla instrument designed to provide your niece with regular payments, "might be a reasonable alternative" to using a trust for the same purpose "if the amount involved is too small to make a trust viable, or if there are no reliable people to serve as trustees and you don't want to name a bank," says Martin Shenkman, an estate-planning attorney in Teaneck, N.J.

He has suggested similar approaches in a few cases in his own practice, he says, but contends that if a trust is a viable alternative, it would be safer. Both tools come with costs: Annuities may carry steep commissions, and trusts typically cost several thousand dollars to set up. The big drawback to using an annuity in this case is that your niece probably could cash it in early. There may be surrender charges involved, but "a spendthrift heir may opt for that approach" anyway, Mr. Shenkman says. A trust could offer more flexibility if the niece has an emergency or "gives up her spendthrift ways and wants to start a business. The trust could loan her money or guarantee a bank loan to get her going."

Watch it! All that affluence may be going to your head.

From this item in today's WSJ:
By now, many of the 8.9 million Americans who earn more than $100,000 annually have already hit six figures; scores more will do so in the next few weeks. Here's what they may miss if they don't watch their paycheck carefully: A nice-sized raise that appears without warning, then vanishes just as quietly on Jan. 1.

Sound odd? It's a function of tax rules. Most workers have their paychecks docked 6.2% to fund Social Security. But they stop paying that tax on income above a certain level each year. This year, the threshold is $94,200. Next year, it is $97,500.

Once you pass that wage cap you can end up with an extra $500 or more a month in your pocket . . . .
***
Nobody rings a bell or sends you an email when this occurs. In fact, salaried individuals with biweekly paychecks who don't watch them carefully may not even notice the change.
You young whippersnappers are spoiled rotten!

Back in the old century, we working stiffs not only noticed when we finished paying our FICA for the year, we spent the preceding months looking forward to our desperately needed "raise."

Thursday, October 26, 2006

Most Charitable Bequests Are Not Estate-Tax Driven

Giving by the wealthy is largely immune to tax changes, according to this Wall Street Jorunel item:
Many wealthy people would still give a lot to charity even if Congress wiped out popular breaks for donating, a study suggests. While these high-net-worth Americans already contribute two-thirds of household charitable giving, donating $126 billion last year alone, they would give more if nonprofits could rein in administrative costs and better demonstrate the impact of donations.

The researchers at the Center on Philanthropy at Indiana University, underwritten by Bank of America Corp., distributed 30,000 surveys between June and September in neighborhoods where the average household had liquid assets of $3 million or more. Responses from 945 were used in the analysis. The survey, designed as a nationally representative random sample, defined high-net-worth households as those with incomes of greater than $200,000 or assets over $1 million.
* * *
52% of responding households said their giving would stay the same if they received no income-tax deductions for it. And 38% said such giving would somewhat decrease, but only 7% said it would dramatically decrease.

In addition, 56% said the amount they would leave to charity in an estate plan would remain the same if the estate tax were repealed.

Do UHNW Investors Love Mission Statements?

If "Yes," then the current U.S. Trust campaign (example below) is going to be a winner.


If "No," then maybe Dilbert's web site has the right attitude. For sure, Dilbert's automatic mission-statement generator can save you a bundle in management-consultant fees.

Tuesday, October 24, 2006

Get to Know Some Future Investment and Trust Clients (We Hope!)

Unlike WWII and the Vietnam conflict, the GWOT is being fought without draftees. Instead, we rely heavily on members of the Reserve and National Guard — older guys and gals who have left families and established careers to serve. As these servicemen and women come home, some will need to sell businesses or roll over 401(k)s. A few may have come into inheritances.

You can get acquainted with tomorrow's war veterans today, at The Sandbox. At this Doonesbury blog, postings from members of our armed forces in Iraq and Afghanistan deal with the stuff of day-to-day life. Some are quite well written. (Maybe our high schools and colleges aren't slacking off so much, after all.)

You'll learn, for instance, why highly decorated veterans may not want to tell you their war stories. And why returnees may find it hard to respond when you say, "Thanks for serving."

Your Senior Assistant Blogger is probably one of the last on the planet to discover The Sandbox. If by chance you haven't visited, do so.

Last Sunday the Washington Post Magazine carried a major article on Garry Trudeau and Doonesbury. His segments on B.D. as a war vet who loses a leg have drawn favorable notice from neocons and even the Pentagon, which must be disconcerting to a liberal Yalie.

By the way, in the article a well-known member of Trudeau's family suggests that the subtext of the B.D. story is not what you might think.

Sunday, October 22, 2006

There's No Such Thing as a Free Dinner

Julie Jason is a lawyer/broker/author. In this newspaper column she asks:

“When you walk into a car dealership, you know you will be dealing with a salesman and will brace yourself for a sales pitch.

“When you walk into a bank, are you just as aware?”

Saturday, October 21, 2006

Outsourcing the Human Side of Estate Planning

Though estate planning has long been driven by the desire to duck or downsize estate taxes, there's also the human side.

In days of old, the human side was the province of the family lawyer and the kindly old trust officer.

Today, according to this Wall Street Journal article, the human side has become a specialty, often outsourced to “family wealth consultants.”

Stands to reason: If estate-tax planning shrinks in importance, the human side will grow. Reports the Journal article:
Financial-services firms, including units of Wachovia Corp. and Merrill Lynch & Co., have launched services designed to help their most well-heeled clients talk more openly about their money issues. Next spring, U.S. Trust, a unit of Charles Schwab Corp., is planning to offer a new three-day retreat for families featuring Shaking the Tree. And Mellon Financial Corp.'s Private Wealth Management group recently started a new program called "Five Steps to Healthy Family Governance" which includes a screening of clips from "Born Rich," a documentary film that examines how young heirs deal with wealth. About 25 families have gone through the Mellon program already.

The goal of all this: to teach families to better communicate about their finances to prevent future problems and to mediate family disputes before they become expensive and public court battles.
The article notes that the American Bar Association's committee on "Emotional and Psychological Issues in Estate Planning" now has 59 members, up from five members five years ago.

This side bar to the Journal article gives a plug for the importance of choosing an independent trustee, such as a bank, to avoid sibling rivalry:

Friday, October 20, 2006

Eight ways to close the tax gap

The Joint Committe on Taxation has, according to Tax Notes ($), released new ideas for enhancing tax collections. One of the biggest is requiring brokers to report the adjusted tax basis for assets sold during the prior year, to make a dent in the estimated $11 billion lost to unreported capital gains. Other suggestions include:

* expanding broker information reporting requirements to include proceeds from sales at auctions, including sales of collectibles and motor vehicles;
* imposing a due diligence requirement on income tax return preparers to determine whether a taxpayer should report an interest in offshore bank accounts and trusts;
* clarifying and defining timely filing of tax returns by foreign persons;
* expanding requirements for mortgage interest; and
* modifying amounts subject to self-employment tax for partners and subchapter S corporation shareholders in personal service businesses.


The tax gap is currently estimated to be $345 billion.

Thursday, October 19, 2006

Hedge Funds Sizzle, but Where's the Beef?

This from MarketWatch:
Hedge funds pulled in $44.5 billion during the third quarter, the most money that's flowed into the industry during any quarter since at least 2003, Hedge Fund Research, which tracks assets and performance in the industry, said on Thursday. Hedge funds now oversee $1.34 trillion in assets, HFR added. Investors have put more than $110 billion into hedge funds so far this year, more than twice the amount put into the industry during the whole of 2005, the research firm noted. "While quarterly performance was again less than spectacular, the flow of new assets into the industry remained remarkably strong," Josh Rosenberg, president of Hedge Fund Research, said in a statement. "
This from Pensions & Investments:
Major hedge fund indexes landed in positive territory for the nine months ended Sept. 30, although none beat the 8.5% return of the S&P 500 . . . .
Average hedge-fund gain for the third quarter: 1%.

Monday, October 16, 2006

How Andrew Carnegie Discovered Capitalism

From Jonathon Yardley's review of a new Andrew Carnegie bio:

Carnegie's story is right out of Horatio Alger . . . . The poor Scot arrives in Pittsburgh in 1848, age 12, child of an aimless father and industrious mother. Goes to work at an early age and quickly ingratiates himself to all with "his remarkably sunny disposition, his broad smile, and non-stop, good natured chatter" -- not to mention his capacity for hard work and his nimble mind. Soon he is a messenger boy for the telegraph office -- "the perfect position for an ambitious, affable young man" -- and soon after that becomes a telegraph operator, "the most sought-after operator in the company" because he is the smartest and the quickest. On he moves to the Pennsylvania Railroad, not yet 20 years old, and wins the favor of its president-to-be. He's offered the opportunity to buy shares in another company, and eagerly does so, with a loan from the boss, and later gets his first dividend check.

"I shall remember that check as long as I live," he wrote many years later. "It gave me the first penny of revenue from capital -- something I had not worked for with the sweat of my brow. 'Eureka!' I cried. 'Here's the goose that lays the golden eggs.' "

No-Account Son: Time to Talk with a Trust Officer

Parents of drug-addicted son make and remake their wills but, apparantly, never seek professional estate-planning guidance about how to provide for the wayward son.

This NextSteps column in the Pittsburgh Post-Gazette discusses their problem.

Sunday, October 15, 2006

Wealth Management as the Way to . . . Wealth!

From Ben Stein's column in today's New York Times:

For students slogging their way through school, here are the merest hints of how you can and cannot reach that top 1 percent, that place where you are paid well even if you make mistakes:

• You do not get to it by studying African feminism in the 19th century, whether or not you are at an Ivy League college. You do not get to it by studying Bulgarian poetry. You do not get to it by any field of endeavor or study that is esoteric and has no connection with helping other people either become healthy or make money.

• You do not get to it by being a civil servant unless you are the kind of civil servant — say, a cabinet member or a United States Senator — who can use his or her connections later to lobby for well-heeled clients. You do not get to it by a lifetime of work in any field in which there are government price caps on earnings.

• You do get to it by working in fields in which you can fix your wages, preferably with the government’s help. These include law, where you need a license to practice, and thereby can lift yourself out of working for free-market wages. (Everyone in this country pays homage to the free market, but no one wants to work for free-market wages.) They also include medicine, where a far more difficult license is required, and where desperate patients will pay almost anything to look and feel good. They also include accounting at the C.P.A. level.

• You are always better off working in a field where torrents of money are sloshing through and you can grab a handful as it goes by. That means Wall Street. Finance is the ultimate great business. (Warren E. Buffett famously said that you are always better off being mediocre in a great business than great in a mediocre business, and he easily could have been talking about Wall Street.) Money pours through Wall Street in vast oceans. Even if you take off a tiny helping, you are going to wind up in that 1 percent. If you can do the daily double and work on Wall Street and be in a position to fix your own wage — say, by being in high management at a major Wall Street firm that has such prestige and connections that it can control its fees and other compensation — you will wind up living a great life, at least money-wise. (It is very difficult in many other ways, and I do not envy the people who do it. The tension is just far too much for little me.)

• You make money by making money for people who already have money. This is another reason finance is such a well-paid field. One good day’s work for a man who has a $100 million account you are trading is worth far more than a lifetime’s work at the checkout counter at Wal-Mart. Yet, amazingly, managing wealthy people’s money is far less difficult and stressful than checking out customers at Wal-Mart. It’s not even close. As my smart sister Rachel says, you make money by making money. It’s tricky, but it’s right.

• You make money by learning skills that lead to any of these: making people feel and look better, learning how to draw their wills, learning how to manage their money so they don’t underperform the bogey terribly, learning how to make complex things like computer parts in ways that lead your employer to make money and reward you with stock options. This is by no means an exclusive list. You also make it by manufacturing cardboard boxes and selling scrap metals. But usually, education in finance, medicine, law, accounting, electrical engineering — something in which you learn to add value instead of having fun in school — is the key.

YOU can try to get into that 1 percent by acting, playing drums or shooting hoops. That rarely works. The sure way is to learn skills that allow you to help make money for other people (or that give them the illusion you’re doing that) or make them feel better (or that give the illusion of doing that on national television).

Friday, October 13, 2006

Brooke Astor gets a friend and corporate trustee as guardians

Brooke Astor's son Anthony Marshall was replaced as guardian of his mother's affairs by her friend Annette de la Renta and JPMorgan Chase & Co., settling a lawsuit that charged Marshall with neglecting his mother, according to this Bloomberg report.

A lawyer for the new, permanent, guardians says the settlement includes a court order that Anthony Marshall, Astor's son, and his wife will make "substantial immediate repayment of cash and other property, including jewelry and art, to Mrs. Astor's estate.''

Wednesday, October 11, 2006

Generousity redefined

Generousity has long been a defining American characteristic. But how generous are we, really? A study by a new advocate for more charitable giving, New Tithing Group, has taken a somewhat novel approach to this measurement. Their surprising conclusions are reported by the New York Times in Philanthropy From the Heart of America.

New Tithing Group analyzed tax returns reporting high incomes and itemized deductions. They inferred liquid assets from reported dividend and interest income, then added this amount to reported taxable income to create a denominator. Total charitable gifts were the numerator. Although "tithing" means dedicting a tenth of one's income to charity, adding liquid assets to the computation obviously changes the formula. Given this unusual approach, the most generous live in Utah—they give 1.63% of their assets away each year. The rich states of California and New York fall near the median, tied for 21st place with Maryland and Wisconsin, with a giving rate of .74%.

Look for Nebraska, ranked third this year, to zoom to the top of the list next year. Warren Buffett's extraodinary gift to the Bill and Melinda Gates Foundation wasn't included in the calculations.

Brooke Astor's Questionable Codicils

If a settlement can be reached before Oct. 13, when a potentially "sensational trial" is scheduled to start, the legal status of three amendments Brooke Astor made to her will late in life may not be determinated until her death. So reported The New York Times last week:

Mrs. Astor’s court-appointed lawyer, who is questioning whether Mrs. Astor was mentally competent to understand the changes to her will that she signed, is challenging the propriety of the three codicils.

The lawyer, Susan I. Robbins, plans to have a handwriting expert determine if the signature on the documents is really Mrs. Astor’s.

Ms. Robbins is particularly concerned about the signature on the third codicil.
The Times notes that a settlement is far from certain. Anthony Marshall, Astor's 83-year-old son, would be required to step down as his mother's financial steward and designated executor.

Monday, October 09, 2006

The Dumb Money: Analysis and advice

Usually the articles that accompany the data in newspapers' quarterly reports of mutual fund results are just filler. The New York Times obviously tried to do better in yesterday's Mutual Fund Report.

Why Your Fund Beat the Average, but You Didn’t, a report by Robert D. Hershey, Jr., shows mutual fund investors pay a stiff penalty for their bad timing. Buying hot funds when they're about to cool down is extremely costly.

In A Bold Insistence on One Way to Invest, Paul Brown terms Daniel R. Solin's book, “The Smartest Investment Book You’ll Ever Read,” bombastic. Sample: “Virtually all brokerage-based financial consultants and most independent financial advisers manage money using dumb money management techniques.”

Still, says Brown, it offers solid advice. Solin, like David Swensen, advocates dodging the expenses associated with many actively-managed mutual funds by investing in index funds.

Reminds me of what Warren Buffet wrote more than a dozen years ago, in his Berkshire-Hathaway annual report for 1993:
By periodically investing in an index fund, the know-nothing investor can actually out-perform investment professionals. Paradoxically, when `dumb' money acknowledges its limitations, it ceases to be dumb.

Who named the Harris multi-family office?

Just asking.

In recent years indicted and or convicted CFO's have been much in the news. ( I can see two properties that do or did belong to such CFOs from my window right now.)

In the circumstances, is MyCFO really the optimum name for the Harris office?

Saturday, October 07, 2006

Yale's investment guru offers investing tip for retirees

NPR offers a nicely assembled page associated with David Swensen's Oct. 5 interview on All Things Considered. You can hear the interview, see Swensen's recommended asset allocation for individuals, and scan a 60-second summary of his book.

Swensen's investment tip for retirees: Maintain your growth-oriented asset allocation but skim something off the top to create a cash reserve.

Jonathon Clements of The Wall Street Journal used to make a similar suggestion: Stay with equities but set aside enough cash to live on for three years, just in cash the market crashes.

Football update:.Yale beat Dartmouth, 26-14.

Friday, October 06, 2006

Yale's endowment racks up 22.9% return

Who says hedge funds are ready to be trashed? You can still find funds that produce awesome returns.

Actually, you or I probably can't. David Swensen, who oversees Yale's endowment, can.

For the 12 months ending last June, Yale's endowment enjoyed an investment return of 22.9%, up slightly from 22.3% the preceding 12 months.

With compounding, that's a return of 50% over two years! Surely, Swensen can't keep up that pace. Or can he?

Football note: Tomorrow in Hanover, the Yale Bulldogs play Dartmouth. With a record of 0-3, Dartmouth should be a pushover. But Yale's starting quarterback, though expected to play, was arrested for breach of the peace the other night.

Wonder if David Swensen can throw a down and out?

Tuesday, October 03, 2006

Amaranth: Looking through the wrong end of a telescope

As we learned in Behavioral Economics 101, investors fear losss more than they crave gains. But does that hold true at the extremes, where immeasurably remote chances of great wealth or great disaster lurk?

The question comes up because of the demise of Amaranth, a hedge fund battered by losses of $6 billion or more. You could almost hear the dazed tone of Amaranth founder Nicholas Maounis as he told investors, “Sometimes, even the highly improbable happens.”

Maybe it happens because it is so improbable.

Hedge fund managers can calculate the risks (volatility) they can expect to face 90% of the time. They can even calculate the likely risks for 99% of the time. But that leaves the extreme, unexpected risk.

One can sense the temptation to view such remote risks through the wrong end of a telescope: "Hey, losing most of our multi-billion-dollar fund in a month is near to impossible. Any risk so very, very remote should be ignored."

When it comes to extremely remote but potentially gigantic rewards, we know people turn the telescope around and look through the right end. Why else would anyone buy a lottery ticket, an investment where risk of total loss greatly exceeds 99.9%?

But who cares about the odds when, looking through the telescope, you can virtually see that immense pile of money coming your way?

Speaking of immense piles of money, suppose you're a money manager, the world's worst money manager.

Every day, including Sundays and holidays, your trades lose $1 million.

Know how long it would take you to lose $6 billion?

Over 16 years!

"Alexandra and James." You already know these wealth-management newcomers

From today's Wall Street Journal:
Alexandra and James Lebenthal, who left Merrill Lynch & Co. last year after the firm dropped their family brand name, plan to resume their Wall Street careers by joining an Israeli bank.

Blocked from using the Lebenthal brand name still held by Merrill, the father-and-daughter team will call the new venture simply Alexandra & James,

Alexandra Lebenthal, age 42, will become the chief executive of the broker-dealer unit of Israel Discount Bank of New York, a subsidiary of Israel Discount Bank, where an investor group led by Matthew Bronfman and Rubin Schron recently acquired a controlling stake.

At Israel Discount, Ms. Lebenthal's unit will focus on both municipal bonds and wealth management for families with net worth of $2 million to $20 million. She plans to offer "family office" or "financial concierge" services.
Marketing the new unit will be the job of Alexandra's father, James Lebenthal, who will assume the title -- unusual for Wall Street -- of creative director.

James Lebenthal is 78. Sounds like our preceding post is right on the money: Most affluent retirees plan to keep working.