Monday, July 30, 2007

What Children of Wealth Should Know

A follow-up to yesterday's post, Skills Camp for Rich Kids. In today's Wealth Report, Robert Frank asks for comments on Why Rich Kids Don't Stay Rich (subscription).

I liked this one from Tom Smith:
The problem is not wealth it is values. In the 80’s I was a scholarship kid at a wealthy prep school. My best friend came from a family that were so-called old money. All the children in my friend’s family seem to be well-adjusted. This was a result of adherence to a number of principles:

1. Mom and Dad are wealthy, you are poor;

2. On Christmas and your birthday you will get luxuries, otherwise you will have to work for them;

3. Mom and Dad will pay for anything that is life-affirming, e.g. music lessons, sports camps, education;

4. believe in something bigger than yourself.

Categorizing ads

Although there may seem to be many, many different approaches to advertising, Seth Stevenson, writing in Slate, says, "There are only 12 kinds of ads." The idea originated with Donald Gunn, Stevenson explains. Gunn was a creative director at Leo Burnett who took a one-year sabbatical to think deep thoughts about what made advertising good and bad.

At the link, Stevenson offers recent examples of each of the 12 types of ad. He also points out how the types overlap or seem to be variations of one another. Just one ad concerns financial services. Although it is for Charles Schwab, the same creative proposition was offered many times by Jim Macdonald in Merrill Anderson's trust newsletters.

To follow up on Gunn's theories, see the Gunn Report.

Sunday, July 29, 2007

Skills Camp for Trust Fund Kids

Well, not exactly kids. These heirs and heiresses are in their early to mid-20s.

Can they learn the skills needed to hold onto the millions they may shortly receive? In this op-ed piece for the L. A. Times, The Wall Street Journal's Robert Frank sounds doubtful. Few of these wealthy young adults could tell him the difference between a stock and a mutual fund.

The "Financial Skills Retreat" was produced by IFF Advisors.

Saturday, July 28, 2007

How to Spot a Rich Dude

While you're visiting Opinion Journal (see below), take a look at Peggy Noonan's column.

We live, writes Peggy, in a world of immense wealth and lousy manners. And the very rich seem to make their money in mysterious ways:
A general rule: If you are told what someone does for a living and it makes sense to you--orthodontist, store owner, professor--that means he's not rich. But if it's a man in a suit who does something that takes him five sentences to explain and still you walk away confused, and castigating yourself as to why you couldn't understand the central facts of the acquisition of wealth in the age you live in--well, chances are you just talked to a billionaire.
• • •

There are good things and bad in the Gilded Age, pluses and minuses. I write here of a minus. It has to do with our manners, the ones we show each other on the street. I think riches, or the pursuit of riches, has made us ruder. You'd think broad comfort would assuage certain hungers. It has not. It has sharpened them.

Marketing to the Investor Class: Talking with Chuck

For newcomers to the business of marketing investment services and products, this interview with Charles Schwab from Dow Jones' Opinion Journal offers useful background.

Schwab started in the brokerage business in 1971. Four years later, the Securities Exchange Act of 1975 did away with fixed brokerage commissions. Chuck took the discount-brokerage ball and ran with it, all the way to the internet.

Schwab favors the Bush tax cuts for capital gains and dividends and hopes they endure:
What would be the stock market response to repealing them? "Oh, I think it would probably cost the market 5% to 10%," he predicts. "That may not happen on a single day. But it will certainly suppress prices. And the market is already anticipating these higher tax rates," he assures me, which means stock prices are already being suppressed by tax uncertainty.
"I would say we're probably in the neighborhood of $10 trillion of unrealized capital gains" Mr. Schwab says of the present economic situation. "If you put a 100% tax on it, of course, the government's going to get none of that. If you're at zero, you would get none. With the 15% rate for capital gains, we're probably at the optimum rate.

Wednesday, July 25, 2007

Retirement Savings "Skyrocket," or Inch Ahead, or Whatever

Stocks did great last year.

The S&P: up 13.6%

The Dow: up 16.3%

So it's no surprise to read this Investment News item: Retirment[sic] savings skyrocket in '06.

How high did assets in retirement plans rocket? Up 11%.

Apparently IRAs, 401(k) plans and such were lacking either equity exposure or new contributions. Maybe both.

Still, it's worth noting that retirement assets account for nearly 40% of household financial assets, up from 24% two decades ago, according to the Investment Company Institute.

Boomers have a lot of rolling over to do. The fight for their business can only get more fierce.

Another Great Moment in Executorship

From an item in the Salt Lake Tribune:
When Judy Upton's father passed away recently and she was named executor of his estate, she canceled his credit accounts.

America First Credit Union, American Express and others closed the accounts immediately and sent sympathy cards.

But when she called RC Willey [a home furnishings chain], she was told her father needed to come in personally. When Upton said her father had passed away, the woman clerk said, "You don't have to be rude."

Baseball taxes

When is catching a baseball a potentially taxable event? That's a question Tom Herman explores in today's Wall Street Journal Tax Report ($). The issue arises as Barry Bonds is now three home runs away from breaking Hank Aaron's career record. The ball is likely to be worth $500,000 or more to collectors. Arguably, according to the experts that Herman talked to, the fan who catches that home run ball will have taxable income the moment he takes possession of it.

Additional tax issues identified by Herman:
Will the Internal Revenue Service require the fan to pay tax immediately, based upon the ball's estimated fair-market value? Or only after the fan sells the ball? Will the fan have to pay tax based on regular federal income-tax rates, which range up to 35%? Or, if the fan waits to sell the ball for more than a year after catching it, would any profit qualify as a long-term capital gain taxed at the maximum rate of 28% on collectibles?

If the prize catch does qualify as a long-term capital gain, what would the fan's cost be for tax purposes? Zero? The price of the ticket? The ticket price plus the value of a new baseball? What if the fan purchased a season ticket? Could he or she consider the cost of the entire season package as the cost basis? Would it make any difference if the person who catches the ball isn't a fan but rather a player standing in the bullpen? Or a groundskeeper?
So far, the IRS is refusing to speculate about these questions. They learned a tough lesson in 1998 when someone there suggested that if the fan who caught Mark McGuire's 61st home run of the season gave the ball to him, the fan would owe a sizable federal gift tax on the transfer. Although the observation was perfectly, legally accurate, the assertion outraged fans so much that the IRS Commissioner quickly disavowed it.

Modest ambitions

Washington taxwriters seem to be coasting toward recess. Tax Analysts ($) reports today that Ways and Means and Senate Finance expect to deal only with incidental tax measures related to the energy bill, the farm bill, and the State Children's Health insurance Progam this summer, and not much else. Even the simple one-year patch for the AMT has been put off until the fall.

Conventional wisdom thus suggests that there will be no additional federal transfer tax legislation until after the next presidential election. At that time, in 2009, the taxwriters' minds will be focused by the scary prospect of a 2010 without federal estate tax.

Sunday, July 22, 2007

Will We All Look Like Trust Fund Babies?

Down at the general store the other morning, out of his Audi stepped a well-dressed guy: Black blazer, silk-blend black tee, black pants draped over black, genuine leather loafers.

How cool, I thought.

Silly me. When black reaches this far into provincial New England, you know the fashion world has moved on.

Goodbye, black. Hello patch madras!

The preppy look is back, The Wall Street Journal reports (subscription):
The last time we were loving golf shirts and pearls this way, we were entering an era that celebrated wealth, on our way to a time when Gordon Gekko was the king of Wall Street and every aspiring corporate raider had a closet full of Lacoste alligator shirts and Topsider deck shoes. Then, greed was good. Now we call it "luxury."
According to this item ($) in The New York Times archives, Sperry Topsiders have indeed jumped back to the top of the fashion charts:
[O]ne can only wonder what Paul Sperry (the stalwart New Englander who invented the Sperry Top-Sider in 1935 by joining a novel nonslip, nonscuff white rubber sole to a moccasin upper) would think to hear Tommy Fazio, the men's fashion director at Bergdorf Goodman, declare on his cellphone from the Milan men's wear shows last week, ''It's all about a boat shoe.''
What really sparked the preppy revival? The WSJ article mentions the Tea Partay video we called to your attention last fall.

So prepare yourselves, wealth managers. Expect more clients wearing pink and green.

Some of the women may look pretty colorful, too.

Saturday, July 21, 2007

Death Bonds

From Business Week's cover story on "life settlement-backed securities:"
Wall Street sees huge profits in buying [life insurance] policies, throwing them into a pool, dividing the pool into bonds, and selling the bonds to pension funds, college endowments, and other professional investors. If the market develops as Wall Street expects, ordinary mutual funds will soon be able to get in on the action, too.

But the investment banks are wading into murky waters. The life settlements industry increasingly finds itself in the grip of dubious characters devising audacious and in some cases illegal schemes to make money. Many are targeting elderly people with deceptive sales pitches—so many that the National Association of Securities Dealers has issued a warning about abusive practices. Others are promising investors unrealistic returns or misleading them about the risks. Some are doing both.

Be sure to check out the slide show, with the grim reaper as your guide.

Should a Stepmother Get Most of Dad's Estate?

Heck, no! Not in the eyes of dad's kids.

Latest example, the disputed will of King Ranch heir B.K. Johnson. Third wife prevails over adult kids in estate suit, listed as the third most popular article on the Investment News web site, indicates that such disputes aren't necessarily about money. It's a matter of principle.
Mr. Johnson’s children, his son’s widow and his eight grandchildren filed their suit against Ms. Johnson in 2003.

The case, advisers say, illustrates a problem that is becoming more common: wealthy clients grappling with what to leave spouses and adult children from former marriages, and the best ways to structure their estates.

Mr. Johnson, who died at age 71 in 2001, left an estate worth between $40 million and $60 million. The majority of the estate was placed in a trust for Ms. Johnson, who receives an annual income of $800,000 to $900,000 from the trust.

Upon her death, at least half of the money will go to charity, and the remainder to Mr. Johnson’s descendants or to charity. The choice is up to Ms. Johnson. Mr. Johnson included this provision to ensure that if one of his descendants were ill, Ms. Johnson would have the ability to provide money for that child.
Such help probably won't be needed. Mr. Johnson didn't exactly disinherit his offspring. During his lifetime he set up trusts for the children. Each trust is now worth $10 million or more.

Also unlikely to need financial aid are the lawyers who worked on the case. "Attorneys for Mr. Johnson’s children and grandchildren were awarded $6.25 million in attorneys’ fees," Investment News reports, "while lawyers for the estate were awarded $4.8 million."

Thursday, July 19, 2007

The JWR Memorial

Tom Gerrity and I attended the memorial service July 18 for Wes Rohn, Merrill Anderson's President and CEO in the late 70s and early 80s. I did not realize just how far it is to Hampton Bays from Stratford—that was one heckuva commute for Wes. Also, there was a tornado and torrential downpours on Long Island yesterday—at times we were driving through 12 inches of water standing on the road!

But it was well worth the effort. Each of Wes's 8 children spoke briefly in his memory, painting quite an accurate and vivid picture of the man we knew in a business context. The First Presbyterian Church provided a very fine setting, the musical selections were charming.

The reception at the Rohn home in Long Island was especially interesting. The house, quite close to the water, was designed by Wes and Joan and features a cathedral ceiling in the great room with picture windows facing the beach. An eclectic batch of paintings adorn the walls, for a very charming effect. Best of all, we had a chance to trade remembrances with several of Wes and Joan's children, as well as having some time to catch up with Joan herself.

Seventeen grandchildren may sound like a lot, but it's even more when you see them in person. What a patriarch.

J. Wesley Rohn, R.I.P.

Merrill Anderson's President and CEO at the time I joined the firm in 1979, Wes Rohn, died earlier this month. Here is his obituary:

Hampton Bays, NY: Joseph Wesley Rohn died in his 85th year at his summer home here on July 5th. He was a son of the late David and Elizabeth Rinier Rohn of West Englewood, NJ and the brother of the late James T. Rohn of Fletcher, NC.

Wes Rohn graduated from the Englewood School for Boys (now Dwight Englewood School) of which he later became a Trustee. He attended the University of Virginia and served as a naval officer during World War II.

In 1947 he began Business News Associates, a company for bank advertising, an open field, as banks traditionally did not advertise at that time. In the seventies he merged the business into the Merrell Anderson Company, later becoming the President and CEO.

The Rohns have summered in Hampton Bays since 1959 and also lived in Closter and Tenafly, NJ, and Litchfield, CT, Wes reconstructing the family’s old houses as he went along. He also enjoyed gardening, boating, fishing and duplicate bridge. He was a diligent worker and a nutritionist and environmentalist ahead of his time. After retiring to Naples, FL in 1986, he volunteered for the Conservancy of Southwest Florida, Habitat for Humanity and Hospice of Naples and joined the Minor League Club.

Surviving him are his wife of 59 years, the former Joan Fagan of Englewood, NJ and his eight children and seventeen grandchildren: daughter Karen, husband Robert Osar and their sons Brian and Daniel of Wilton CT; sons David Rohn of Miami, FL, Frederick Rohn, wife Dana, and their daughters Chloe and Phoebe, of Litchfield, CT; and Peter Rohn, wife Regina and their children James, Alex and Peter of Tenafly, NJ; also Carl Rohn and Michael Rohn of Hampton Bays and Carl’s daughters Jennifer and Emily of Salt Lake City, UT, Meredith of Manorville, NY and Mckayla of Baldwin, NY; and Mary (Molly), husband Jeffrey Morgan and their children Ben, Lucy and Marguerite; and Robert Rohn, wife Katherine and Children Katie, Galen and Nicholas, all of Darien CT.

Wes Rohn belonged to the First Presbyterian Church of Naples, FL and the First Presbyterian Church of Southampton, NY, where there will be a memorial service on July 18th at 12 noon. Memorials may be made to either church, or to the Dwight Englewood School, Englewood, NJ. For further details, contact the J. Ronald Scott Funeral Home, 20 Ponquogue Avenue, Hampton Bays, phone # 631-728-3660.

Can You Cross Sell in an Online Bank?

Banks need more and better tellers, The Wall Street Journal notes (subscribers only):

"For banks, the entry-level teller position has become the primary way to win new customers and sell new services to existing ones."

But how do you cross sell home loans and investment products, or even living trusts, if there are no tellers, no bank branches?

Welcome to the bank of the future. And that future could be, like, tomorrow. Read what Money magazine's Eric Schurenberg said yesterday on the Nightly Business Report:
Until recently, banks that exist online and only online were basically just repositories of high-yield savings accounts. You needed a regular bank to use cash machines and write checks. Well, no more. Pure online banks, like E-trade bank, HSBC Direct and Everbank, have come of age. One of them may just be better for you than your current brick and mortar branch.

Prices change at multifamily offices as well

Following up on JLM's observations below on falling fund expenses, this article from InvestmentNews-- Multifamily offices rethink their pricing-- reveals another new approach for pricing investment services for the wealthy. Interestingly, the multifamily offices are not adopting the 2 & 20 approach of the hedge funds. Instead, they are adopting flat rates!

One of the benefits of flat rates is that they "match up the interests of the multifamily office and the family."
Asset-based fees tend either to overcharge or undercharge the client, according to Brian Hughes, senior vice president and national director of business development for Jenkintown, Pa.-based Pitcairn Financial Group.

What’s more, he said, firms usually lack benchmarks when determining fees to help them accurately gauge a fee break point that is both favorable to the client and profitable for the firm.
That's odd. I've always been taught that a percentage of assets fee is the model that best aligns the interests of the manager and the client—"Our compensation won't go up unless your portfolio is growing." However, asset-based fees are apparently problematic when major philanthropy is on the agenda, according to the article.

Wednesday, July 18, 2007

Fund Investors are Watching Expenses

In his Wall Street Journal column (subscribers only) today, Jonathan Clements comments on a 2006 survey conducted for the Investment Company Institute.
• Over the past decade, 90% of new stock-fund money has been invested in funds with below-average expenses.

• 74% of recent fund buyers considered fees and expenses, while 69% looked at performance, 61% at risk and 25% at the manager.
Total annual costs for stock funds, including sales loads, dropped to 1.07% of assets in 2006 from 2.32% in 1980.

Was Subprime Lending Just Rocket Science?

A while back, Bearn Stearns launched a hedge fund that invested mainly in complex packages of subprime mortgages. The fund did so nicely that Bear Stearns last year launched a second, more highly leveraged version.

Too bad so many people with subprime mortgages can't pay them off, especially when their low teaser rates expire. The first Bear Stearns fund is now worth nine cents on the dollar. The second, as FT. com reports, is not worth a dime:
Bear Stearns on Tuesday told investors in two stricken hedge funds managed by the bank that one fund had lost all its value and the other had about nine cents remaining for every dollar invested following bad bets on the US subprime mortgage market. The losses, especially for the less leveraged of the two funds, were worse than investors expected. “They are a big investment house. They are supposed to be professional,” said one fund of funds executive. “There is nothing to do now except maybe go shoot the guy who did it.”
Counting leverage, the two funds at their peak may have been worth $16 billion or more. But before we shoot the hedge fund managers who gambled and lost, pause to reflect. Who created this whole subprime mess is the first place?

The New York Times identified a leading suspect back in March: The Subprime Loan Machine($).

Edward N. Jones, a former NASA engineer for the Apollo and Skylab missions, looked at low-income home buyers nearly a decade ago and saw an unexplored frontier. Through his private software company in Austin, Tex., Mr. Jones and his son, Michael, designed a program that used the Internet to screen borrowers with weak credit histories in seconds.
The old way of processing mortgages involved a loan officer or broker collecting reams of income statements and ordering credit histories, typically over several weeks. But by retrieving real-time credit reports online, then using algorithms to gauge the risks of default, Mr. Jones’s software allowed subprime lenders like First Franklin to grow at warp speed.

The rise and fall of the subprime market has been told as a story of a flood of Wall Street money and the desire of Americans desperate to be part of a housing boom. But it was the little-noticed tool of automated underwriting software that made that boom possible. Automated underwriting software spawned an array of subprime mortgages, like those that required no down payment or interest-only payments. The software effectively helped move what was a niche product only a decade ago into the mainstream. Automated underwriting “replaced the ways we used to extend credit,” said Prof. Nicolas P. Retsinas, director of the Joint Center for Housing Studies at Harvard.
Loan approval by algorithm proved extremely efficient. Remember the ads? “We’ll give you loan answers in just 12 seconds!”

That's not much time to work miracles, even with the help of rocket science. In comes a loan application. The applicant presumably couldn't get approved for a standard mortgage. Whoosh! Twelve seconds later, the applicant is qualified for a costlier (after teasers expire) subprime mortgage.

“Farce is tragedy played
at a thousand revolutions per minute"

– John Mortimer

Let's hope this farce doesn't end in too much tragedy. You can read Bear Stearns letter to clients, reporting the closing of the two hedge funds, here.

Tuesday, July 17, 2007

Big Mac Index

My all-time favorite feature of The Economist? The Big Mac Index.

As always, this year's edition compares the average price of a Big Mac in the U.S. with what you would pay, translated into U.S. dollars, in other countries.
A sampling:

Hong Kong: $1.54
Russia: $2.03
Czech Republic: $2.51
United States: $3.41
Switzerland: $5.20
Iceland: $7.21
Are the currencies of the first three countries undervalued?

Are the Swiss Franc and the Icelandic Kronur riding for a fall?

Time may tell.

Meanwhile, the Big Mac Index gives wealth managers a fun way to suggest the prudence of globally diversified portfolios.

Monday, July 16, 2007

Banking's "Sales Culture" Goes Global

For most of the 20th century, bank employees served their customers. In the 21st century, they're required to sell stuff. The change can be hazardous to a customer's financial health, even in Malaysia, as Quah Seng-Sun reports in this post on his blog:

Everyone that works in the banking industry today knows that selling their products is very much part of their job. Such is the competition for business among banks that the staff knows no boundaries for the sake of closing a sale, finalising a deal or pushing a product.

There is little care whether the sale, deal or push will actually benefit the customer. As long as there is a transaction that benefits the bank’s bottom line, the bank will want to push it through because ultimately, that’s the pressure on the staff. Many old bank staff feels uncomfortable with this role - they feel that they are betraying the customers that they are so familiar with - but to new bank staff, it is second nature to them that they are bank salesmen. They know of no other alternative.

I met an elderly couple this evening. Both are in their mid-seventies. They knew that I have an active interest in financial planning - investments and estate planning - so they asked me to look at the copies of two application forms in their hands. They were illiterate and wanted an explanation of the two forms.

I was surprised. The forms turned out to be applications for some unit trust funds. One was a third-party global infrastructure fund marketed by Maybank while the other was a Euro equity fund from Public Mutual.

I was surprised because all that the elderly couple had done at the branches of these two banks was to ask the bank staff for alternatives to their maturing fixed deposits.

Sunday, July 15, 2007

Thought for the Day, from Joseph Heller

Before novelists start publishing best sellers, they need day jobs.

In twentieth-century New York, that neccessity sometimes led to writing advertising copy. Scott Fitzgerald did it. At The Merrill Anderson Company after World War II, so did Joseph Heller.

Judging from John Bogle's blog, the author of Catch 22 still has a way with words. Mr. Bogle recently told this antecdote to the MBA graduates at Georgetown University:
At a party given by a billionaire on Shelter Island, the late Kurt Vonnegut informs his pal, the author Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel, Catch-22, over its whole history.

Heller responds, "Yes, but I have something he will never have: Enough."

Wealthiest Americans

Think Bill Gates is rich? The front-page story in today's New York Times compares the relative rank of wealthy Americans, past and present, in terms of the national economy of the time.

As you'll see from this interactive graphic (an elaboration on the chart in the print edition), Gates is nowhere near as rich as Cornelius Vanderbilt.

What's more, Gates will have to more than double his fortune to outrank this country's all-time number-one wealthholder, John D. Rockefeller.

Friday, July 13, 2007

Meet the YAWNs: Super-Rich, Really Boring

The yawns are the subject of this week's Wealth Report (subscription required):
Yawns are "young and wealthy but normal." They are men and women in their 30s and 40s who have become multimillionaires and billionaires during the wealth boom of the past decade. Yet rather than spending their money on yachts, boats and jets, yawns live modestly and spend most of their money on philanthropy. In stark contrast to the outsized titans of the Gilded Age and the slicked-back Gordon Gekkos of the 1980s, yawns are notable for their extraordinary dullness.
The new species of wealth seems to have been first spotted by the Sunday Telegraph. As The Wealth Report notes, yawns may flourish better in the UK than the US, where diffidence doesn't come naturally to the New Rich:
[Natasha] Pearl, the concierge-firm founder, says, "The old-money families that live in a low-key style are doing this without conscious thought. They are behaving as their parents, grandparents, and earlier generations all behaved.

"The low-key new money is far more self-conscious, Ms. Pearl says. "They work very hard, and spend incredible amounts of money trying to be normal and raising their kids to be normal."
The Sunday Telegraph article notes that younger and younger people are showing up on UK rich lists. Seems liquidity events occur sooner for 21st-century entrepreneurs:

"Private equity groups have been buying small family businesses all over the country, as well as companies with household names such as Boots or the AA. That has made it easier for young entrepreneurs to cash in their chips at an earlier stage."

Thursday, July 12, 2007

Divvying Up Trustee Duties

Love the way Rachel Emma Silverman of The Wall Street Journal writes about complicated subjects such as trusts and estates. Here's as clear a two-sentence intro to trusts as you're likely to read:
A trust, in its most basic form, is an agreement to hand over your assets to someone else -- the trustee -- who minds the funds or property for your beneficiaries. Depending on how it's structured, a trust can be used for a wide variety of purposes, including avoiding probate proceedings, saving on estate taxes or providing for future generations.
Now why can't banks and trust companies express themselves with such clarity?

Ms. Silverman's subject today (subscription required) is the growing complexity of trusteeship:
Here's how trusts are getting more complex:

• More families are using trusts with teams of multiple trustees or advisers, and some trustees are delegating specific trust assets to outside investment managers.

• Some trusts enlist "trust protectors," who generally have the power to fire and hire trustees.

• Using multiple trustees or advisers may lead to higher fees, state income-tax consequences and legal questions about who is ultimately responsible.
Naming a separate trustee to handle investing is O.K., I guess: "Hope springs eternal." Having a separate decision-maker for discretionary payouts to beneficiaries sounds logical if the administrative trustee is a megabank. (Though the Senior Assistant Blogger is a proud stockholder in Citigroup, he wouldn't expect Citi to provide the equivalent of an old-fashioned, community-bank trust officer.)

Is the slicing and dicing of trusteeship the inevitable wave of the future?

Wednesday, July 11, 2007

World-Class Trustor, Unlucky Investor

How many trusts does a member of the Forbes 400 need? About 25, according to this article (subscribers) in The Wall Street Journal.

Some trusts set up for Fred DeLuca, co-founder of the Subway sandwich shops, were established offshore, in locales such as Lichtenstein, Isle of Man and Guernsey.

The trusts' investments seem to have been managed right here in the U.S.A., via five trustees and a broker at UBS. Unfortunately, the trusts were victimized by the bust, plus untimely bets on a couple of health-care stocks.

Recently, a three-person National Association of Securities Dealers arbitration panel rejected claims that UBS had mismanaged the trusts. Says the WSJ:
The case opens a rare window into arbitration claims by wealthy individuals against their brokers, showing how difficult it can be for them to recover losses from Wall Street brokerages. As is often the case with arbitration awards, the panel didn't give reasons for its decision. But rich people have a tough time winning claims, because they tend to know a lot about how the stock market works and as a result don't get a lot of sympathy when they do cry foul.
How tough? A lawyer for the trusts notes that last year, 148 claims for more than $1 million went to arbitration. More than 60% were "dismissed in their entirety."

Tuesday, July 10, 2007

Credentials that Count

Yesterday we noted The New York Times piece on financial sales people with fancy but dubious initials after their names. Here's a Jonathan Burton column at MarketWatch explaining why the CFA and CFP designations are a different kettle of fish.

How New Money and Old Money Differ (Maybe)

Writing in the Journal of Financial Planning, James Grubman and Dennis T. Jaffe sort High Net Worth families into two groups: immigrants (new money) and natives (old money):
Clients who come to wealth during their lifetime have fundamental differences in life experience, identity, and adjustment compared with clients who come from family wealth. Much like the differences between immigrants and native-born citizens, acquirers and inheritors experience the Land of Wealth from unique perspectives. They also face different dilemmas in parenting effectively and in making choices about estate planning.
Interesting slant, though you may question whether New Money comes only in plain vanilla. What about Greenwich hedge fund managers and other tutti fruitis?

Monday, July 09, 2007

Marketing Annuities? Watch Your Back

Advice to insurance company execs, especially those in charge of marketing deferred annuities:

Avoid dark alleys frequented by belligerent senior citizens.

Reason: this front-page New York Times article, reporting on how "advisers" score big paydays selling annuities to seniors, using tactics that the companies producing the financial products probably don't want to know about.

The side bar below features a guide to "certifications" designed to make sales agents look like experts: (Click on image for clearer view.)

Question for bank marketing people: Will distaste for the tactics used by insurance agents spread a taint over sellers of annuities operating out of banks? Annuity sales in banks already have harvested bad press, as noted here and here.

Wealth managers may be called upon to help clients who bought deferred annuities without realizing the extent to which they were tying up their money. Today's Wall Street Journal (subscribers) offers a guide to possible exit strategies.

This post was composed by a proudly non-certified senior advisor.

Saturday, July 07, 2007

Giving Till It Hurts

Extra-generous gifts to charity are on the rise, says this Wall Street Journal story (subscribers). Helping to spark the trend: the popularity of CRATS and charitable gift annuities, plus the Pension Protection Act, which facilitates gifts as large as $100,000 from IRAs.

Monday, July 02, 2007

Have Boomers Become Former Homeowners?

Most Boomers haven't saved enough to retire in comfort. Some haven't saved at all. But not to worry – they're building affluence through the homes they own.

On second thought, maybe it is time to start worrying.

Check out "A False Sense of Security? You Must Own a Home" in The New York Times:
Never before have homeowners actually had such a small ownership stake in the houses they occupy.
* * *
Using one’s home as an A.T.M., as economists like to say, has become so easy since the 1980s that it is hard to kick the habit. Home equity loans proliferated, giving families a readily available line of credit, and government encouraged lenders to reach out to low-income families, allowing them to qualify for mortgages with little (sometimes no) down payment. Mortgage lenders shed their caution, able to sell sketchy home loans on Wall Street and pass on their default risk to other investors (the perils of which have been exposed in the recent Bear Stearns debacle).

The tax code has played its own special role in all of this. Congress changed the law in 1986, allowing individuals to deduct on their tax returns only those interest payments on loans tied to housing. Interest on other loans no longer qualified. With that big change, borrowing against one’s home to buy a car or an appliance or clothing or a vacation became cheaper, after taxes, than standard consumer credit.
* * *
The culture of “own your home free of debt as soon as possible” had endured for decades. Through the 1960s and ’70s, owners’ equity ranged from 65 to 70 percent. As recently as 1983, some 52 percent of American homeowners who were 55 to 65 years old owned their homes without any mortgage debt — allowing them to be free of monthly installment payments during their retirement years. By 2004, however, that percentage had dropped to 36 percent, according to Federal Reserve data.
What about it? Are some of your present or potential clients poorer than they look?