Friday, November 30, 2007

Lloyds's Expat Quarterly

This morning's briefing from American Banker tells us, "Lloyds TSB Offshore Ltd. plans to expand its 'borderless banking' strategy by adding offices in the United States and other countries."

Take a look at Shoreline, Lloyds quarterly magazine for expats. Livelier art direction than most U.S. bank pubs. Relatively short articles. Both trends worth emulating.

The online version of the current issue is limited to subscribers, but you can check out past issues. In last summer's, you'll meet an American who's gone to India to help run those call centers, plus the expats below in Australia. (Click on pic for larger image.)

Thursday, November 29, 2007

Do your clients trust you?

If they do, you might be in the minority of financial advisors. In Why the Rich Don't Trust Their Advisers, the Wall Street Journal's Wealth Report blog reveals:
According to a survey released this morning by Spectrem Group, which polled investors worth $25 million or more, close to half of all respondents believe they could do a better job of financial planning than their advisers. And only about half were satisfied with the “knowledge and expertise” of their adviser and his or her ability to “deal with complex financial issues and problems.”
Why? Most of the respondents were self-made millionaires, they didn't inherit their wealth. Contrary to what Merrill Anderson preaches, these people believe that if they have proven themselves in a business or a profession, mastering investment skills should not present a problem. But even worse,
They believe (fairly or not) that private banks and Wall Street firms today are more interested in products than providing custom financial advice.
Maybe all that cross selling wasn't such a good idea?

UPDATE: Don't miss the comments to the above-noted post, they provide a fascinating look into the minds of your prospects. Best observation, from Paul in NY:

I once had an “old-timer” from Wall Street sum up the investment banking/advisory business to me, as follows: “We don’t want to steal your money, but we will if we have to.”

Wednesday, November 28, 2007

“The Case of the Astor Will” is Woefully Miscast

Yes, miscast. So we realized last evening after watching "Hercule Poirot's Christmas."

A movie length Agatha Christie mystery, "Hercule Poirot's Christmas" takes place in an English country home at Christmastime, 1936. The family patriarch, age 70+, has grown incredibly rich mining African diamonds. Now he summons his children, including a long-lost black sheep, plus a 20-ish granddaughter from Argentina, to join him for Yuletide. When they arrive, he let's it be known that he intends to change his will. He'll make a new one right after Boxing Day.

As the rigid conventions of English country-house mysteries require, he is promptly murdered.

After Poirot solved the crime. we turned to the news. There was Anthony Marshall, stooped and noticeably frailer, appearing in court to be charged with pillaging the estate of his mother, Brooke Astor, and forging her signature on changes to her will.

The casting couldn't be more wrong. The Astor matriarch was well over 100 when the amendments to her will were made. Marshall, assigned the role of the suspect son with black-sheep tendencies, is 83. (He could have been a 12-year-old choir boy in 1936, the year in which "Hercule Poirot's Christmas" is set.) Marshall's spouse, cast as "the scandalous young second wife," is now 65, presumably eligible for Social Security. And the role of grandchild is filled not by a student-age young person but by Philip Marshall, a professor in his mid-fifties.

All wrong! One wishes that, instead of a trial, the God of Equity might descend to the stage and settle things properly. Send the old folks to a first-rate assisted-living facility. Give the aging grandchildren sufficient bequests to top off their retirement funds. Then bestow the bulk of the estate upon the charities Mrs. Astor designated in her pre-amended will.

One member of the cast does seem to fit his part. Attorney Francis X. Morrissey Jr. allegedly has a talent Agatha Christie would have loved. Reportedly, he just can't help attracting elderly clients who want to remember him in their wills.

Tuesday, November 27, 2007

Newly Opened Investment Tax Gift

How do you turn dividend and interest income into tax-deferred capital gain? Temporarily, anyway, the answer seems to be ETNs (Exchange-Traded Notes).

Allen Sloan explains here.

Monday, November 26, 2007

The Battle for the Ultra-High-Net-Worth Market Heats Up

When my wife was a young bride in need of a job, she got helpful leads from the nice young manager of Merrill Lynch's Stamford office. Dan Tully was so nice and so competent (bet he wouldn't have stood for this subprime nonsense) he wound up running Merrill.

Now Tully and two other former Merrill Lynch CEOs, together with other Wall Street heavyweights, are backing a new private bank: Fieldpoint Bank and Trust of Greenwich, slated to open in February. You can read the Dow Jones Newswire story here:
Fieldpoint will administer funds worth billions at the outset, offering banking, investment and estate management advice. Chief Executive Kevin McCabe, who used to work at JP Morgan Chase (JPM), believes Fieldpoint will also offer its clients excellent networking opportunities. Clients will be offered the opportunity to share ideas with each other, including investment opportunities.

Wealthy individuals often express their dislike of established private banks, citing poor service and product pushing . . . .
The Dow Jones story also notes that Rockefeller & Co., the outgrowth of the old Rockefeller family office, is gearing up to seek more outside business. Judging from their web site, that definitely includes trust and estate business:
Because of our firm’s heritage, we are particularly attuned to the needs of families managing wealth transfer across generations. We understand the nuances of administering long-term trusts and the role that education and mentoring play in helping children and grandchildren to manage the responsibilities of wealth.

As a corporate fiduciary, we offer impartiality and objectivity in administering payments. We are experienced and flexible when working with individual co-trustees or outside advisors.

Our subsidiaries, The Rockefeller Trust Company (New York) and The Rockefeller Trust Company (Delaware) deliver a cost-effective full range of trust and estate services . . . .
Overall, Dow Jones notes, total wealth serviced by private banks grew by 25% last year.

Hedge Funds: Less Than Meets the Eye?

From a Wall Street Journal article that online subscribers can read here:
When reporting their assets under management, hedge funds typically refer to the amount of money they have attracted from investors -- a practice long established by mutual funds and other investment firms. Many hedge funds also borrow money to increase their "leverage," which amplifies their potential returns (and potential losses). In recent months, as the market turmoil has forced many funds to cut back on their borrowing, it has become evident that some were adding in the borrowed money when reporting their size. For example, bond fund Y2K said it had assets under management of $2 billion as recently as July. But after a tough summer, London-based parent Wharton Asset Management UK Ltd. said the fund actually had less than $100 million in investor capital, and that most of the rest had been borrowed.
Leverage, double counting (as when a manager's fund of funds invests in the firm's own hedge funds) and valuation issues make the size of the hedge-fund market hard to judge. Estimates range from $2.48 billion down to $1.25 billion.

Ultra-high-net-worth investors like to talk the hedge-fund talk. To what extent are they walking the walk?

Sunday, November 25, 2007

“Lifestyle” Sells. What Can Fee-Based Advisers Learn?

Investment advisers and financial planners who work for fees rather than commissions can surely learn from these two Washington Post articles.

Learn what? You 'll have to figure that out yourself. The Senior Assistant Blogger is way too 20th century.

When You Need Another You:
Three years ago, [Ezra] Glass co-founded a lifestyle-management company in Rockville named Serenity Now, a name inspired by an episode of the television show "Seinfeld." It's modeled on similar lifestyle-management firms in vogue in Europe, where clients pay a membership fee for round-the-clock advisers who can cater to their every need, including entree into chic clubs and restaurants. Glass's clients pay a membership fee that ranges from $450 to $1,500 a month.
Apple Retail Stores Revamp:
It's not uncommon to find people dropping in to hang out, use the Internet or let their children play on the Macs on low-legged tables. Personal blog entries, complete with snapshots of the authors in the store, are sometimes written on the spot.

"We try to pattern the feeling to a 5-star hotel," said Apple's retail chief, Ron Johnson. "It's not about selling. It's about creating a place where you belong."

* * *
The "one-to-one" personal training service that Apple stores launched two years ago is also becoming more popular, Johnson said. He declined to give specific growth figures.

For $99 a year, a customer gets up to one hour a week to learn about a wide-range of subjects tailored to the customer's interest or abilities. The program is for beginners and experts alike and can cover how to set up computers, make movies, build Web sites or put together a scrapbook or family newsletter.

Saturday, November 24, 2007

Public Radio: Happy Medium for Reaching Wealth?

Once upon a time I wrote occasional trust and estate-planning commercials that ran on radio stations offering classical music. Most of those for-profit broadcasters have perished. Some of the survivors are shadows of their former selves. (When WCRB in Boston was bought up recently, the new ownership changed the format from classical to classical lite; i.e., no more symphonies.)

Serious music (classical and jazz) hasn't vanished from the airwaves, however. It's moved to public radio, along with most serious public-affairs programing. As a result, non-profit radio attracts educated, affluent listeners – prime prospects for investment and financial-planning services.

Most all the major financial-services companies seem to sponsor something on NPR occasionally. BofA Wealth Management pops up on Morning Edition. But it's smaller banks and trust companies that may benefit most from public radio sponsorships. At relatively modest cost they can introduce their brand to considerable number of potential clients.

Here in New Hampshire, I hear Charter Trust Company and Laconia Savings Bank mentioned on NHPR.

What about you marketers in other parts of the country? Do you find public radio a useful, cost-efficient way to keep your brand name in the public ear?

Is Mary's Little Computer Getting Mugged?

A page-one story (subscription) in today's Wall Street Journal reports Nicholas Negroponte's idea for the XO laptop (see preceding post) could fall victim of its own success. Microsoft and Intel don't take kindly to the notion of millions of kids using non-Windows computers:
From its inception, One Laptop Per Child posed a threat to the personal-computing dominance of software giant Microsoft and chip maker Intel. Mr. Negroponte's team, drawn from MIT, designed a machine that didn't use Windows or Intel chips. It uses the Linux operating system and other nonproprietary, open-source software, which users are allowed to tinker with.

Last year, Intel, which normally doesn't sell computers, introduced a small laptop for developing countries called the Classmate, which currently goes for between $230 and $300. It has marketed the computer aggressively, although it stands to make little money on the initiative. But it hopes to prevent rival Advanced Micro Devices Inc., or AMD, whose chips are in Mr. Negroponte's competing computer, from becoming a standard in the developing world.
This year, says the WSJ, Bill Gates announced Microsoft would offer developing countries a software package that includes Windows, a student version of Microsoft Office and educational programs. Total price? $3.00.

For a helpful comparison of Intel's Classmate and the XO, see this ars technica article.

Incidental intelligence: There's a Bull Market for XO laptops on eBay. This morning the bidding on one XO, to be delivered only after the seller, who participated in Give One, Get One, receives the machine, had climbed above $600!

Thursday, November 22, 2007

Give Thanks . . . and Mary's Little Computer

[With apologies to Sarah Josepha Hale, the long-time editor of Godey's Lady's Book. Sarah nagged President Lincoln into declaring a National Day of Thanksgiving, but her best-known legacy is a children's poem.]
Mary has a little XO,
It's powered by the sun.
And everywhere that Mary goes,
She learns and has some fun.
What's the XO? It's the brainchild of a certified nut case, Nicholas Negroponte, founder of the MIT Media Lab.

Professor Negroponte and his fellow nuts have a dream: Create an indestructable, solar-powered laptop computer that is so cheap ($100 or so) that one can be provided to every kid in the world. Undernourished kids in Africa? Yes! Shoeless kids in South America? Yes!

"Impossible!" everybody said.

Everybody was right. The impossible will take a little longer. You can't make an indestructible, solar-powered laptop for $100.

OK. How does $200 strike you?

Welcome to the impossible dream: The unix-operated surfing, chatting, words and graphics and whatever else a kid can think of XO laptop now being produced by OLPC (One Laptop Per Child):
While children are by nature eager for knowledge, many countries have insufficient resources to devote to education—sometimes less than $20 per year per child (compared to an average of $7,500 in the United States). By giving children their very own connected XO laptop, we are giving them a window to the outside world, access to vast amounts of information, a way to connect with each other, and a springboard into their future.
Wealth managers and their clients talk a lot these days about leaving legacies that amount to more than just money. One Laptop Per Child sure seems to fill the bill.

Give One, Get One. This weekend only, through November 26, you can help fund the impossible dream. For $400 plus shipping, you can donate the revolutionary XO laptop to a child in a developing nation, and also receive one for the child in your life in recognition of your contribution. Nov. 23 update: Give One, Get One has been extended to year's end. The program also got important face time from Negroponte's appearance on the Thanksgiving edition of the PBS News Hour.

Hey, big spenders! By donating a mere $250,000, you can have a thousand XO's sent to a thousand kids in the country of your choice. And I bet that offer is good even after November 26!

Sunday, November 18, 2007

Social Security: How to Double Dip

Financial advisers should consider the Baby Boomer's Guide to Social Security a keeper, assuming they have access to the online WSJ.

Did you know, for instance, that a married man who waits until age 70 to collect his retirement benefit (thus qualifying for a significantly larger monthly payment) may be able to collect a spousal benefit in the meantime?

Here's how the WSJ explains it:
George, at his full retirement age of 66, expects a benefit of $2,000 a month. His wife, Martha, at her full retirement age of 66, expects a benefit of $1,000 a month.

The strategy: Martha files for a reduced benefit on her own at age 63, or $800 a month. George, at age 66, files for just a spousal benefit, based on Martha's earnings. He would get $500 a month as Martha's spouse. (Yes, Social Security allows George to get half of what Martha was projected to receive at her full retirement age.) Then, at age 70, George applies for benefits based on his earnings history. With the "delayed retirement credit" (the additional dollars one receives for waiting until age 70 to claim Social Security), George's benefit would be 32% higher, or $2,640 a month.

Social Security would stop George's spousal benefit of $500 a month because he's entitled to the $2,640, based on his own earnings, at age 70. Again, for this to work, George must wait until his full retirement age or later to file for a spousal benefit.
Caution: Serial double-dipping is such a cool gambit that even some Social Security officials don't know about it.

Friday, November 16, 2007

Brokers are talking up charitable giving

Philanthropy is a core element of wealth management for most families. Registered Rep magazine reports that more and more brokers are recognizing that fact and discussing the subject with their clients. According to a survey done by the magazine with Schwab, some 79% of brokers say that they will talk about philanthropy, though a much smaller number feel comfortable initiating such discusssions.

What would it take to get more brokers to break the ice on charitable giving topics? This graph tells the story (click to enlarge).

The wealthier the client, the more important a role philanthropy is likely to play. And at higher wealth levels, charitable trusts are playing a big role, according to the study.
Elaine E. Bedel, a fee-only financial advisor with Bedel Financial Consulting in Indianapolis, says her background working in the trust department of a bank gave her the knowledge to speak confidently with clients about charitable giving. It’s usually a discussion that takes place in her initial meeting with a client, she says.
What if the client isn't charitably minded?
Raymond F. Rivas, a financial advisor with Atherton Wealth Planning in Atherton, Calif. says, in fact, that he takes a rather blunt approach. “I usually say, ‘Look, you have a lot of money here. What are you going to do for others? You have two choices when you pass away. Are you going to give your social capital to the IRS, so they can decide how to distribute it, or are you going to take your social capital and decide yourself how to distribute it among your fellow Americans.’”
That's been Jim Macdonald's defense of the unlimited charitable deduction—who wants to let Washington spend the money? But they keep spending it whether they have it or not. I'm wondering whether my taxes might go down a bit if we share some of the charitable largess with the IRS?

Maybe Santa will bring us an AMT patch?

Tax Notes Today ($) reports that after categorically ruling out Senate consideration of an AMT patch before the Thanksgiving recess, Majority Leader Harry Reid asked for unanimous consent yesterday (November 15) to debate the bill passed by the House last week.

Reid's unanimous consent request stipulated that after two hours of debate, the Senate would either vote to cut off discussion of the measure or move on to consider competing amendments by Assistant Minority Leader Trent Lott, R-Miss., and Finance Committee Chair Max Baucus, D-Mont.

Lott's amendment would repeal the AMT outright and extend expiring tax provisions by one year. Baucus's amendment would provide a one-year AMT patch without offsets and a two-year, offset extenders package.

The fact that Baucus was willing to drop offsets for the AMT patch indicated possible movement toward compromise and resolution of this long-overdue tax problem. But Minority Leader Mitch McConnell objected (and it only takes one to defeat a unanimous consent motion), arguing for a "clean" bill with no offsets at all.

Thus, the crisis continues into December, as the Senate leaves for its two-week Thanksgiving vacation tomorrow.

Remember how upset Senators got when the Iraqi parliament took a vacation last summer, leaving important legislative work unfinished? Were they just kidding around then, or do those standards not apply to our Congress?

Is there some reason I've missed for why the AMT couldn't have been responsibly addressed six months ago?

Our prior commentary and comments on the AMT fiasco are here, here and here.

Estate Tax Valuation: Digital Doubts

When corporate fiduciaries want attorneys to send them business, those fiduciaries are well advised to send attorneys something in return. Hence publications such as Estate Planning Studies and Briefs.

The lead item in the November Briefs caught my eye. The U.S. Court of Appeals, Second Circuit was confronted by an estate-tax valuation dispute in which the IRS had claimed one fifth of a closely-held business was worth $32 million.

The estate set the value at only $1.75 million.

(The Tax court, which loves to compromise, set the value at $13 million).

The disparity was so great that the IRS sought an underpayment penalty.

Two questions sprang to mind:

What could trigger such a great disparity in valuation?

Why did the disparity seem less shocking that it would have in the past?

The trigger
Estate of Thompson v. Comm'r deals with the valuation of a one-fifth interest in Thomas Publishing Co., "a century-old, closely held corporation which produces business-to business publications." The one-fifth interest belonged to Josephine T. Thompson, who died in May, 1998.

In effect, the estate defended its low valuation by saying, "The Internet is killing us!" Discounts applied in calculating the valuation included one for "Internet and management risk."

The IRS argued that its high valuation was realistic as of 1998, especially since the company seemed to be adapting well to the digital world: its own web site was attracting lots of traffic.

Bet this isn't the last valuation dispute to be triggered by the need for businesses to move online.

The shock absorber
Why do outlandish differences in presumed value seem less shocking? Probably because we're getting used to derivatives. This year we're certainly getting used to CDOs (collateralized debt obligations) derived from what The Wall Street Journal likes to call "tainted mortgages."

Marked to model, the CDO may be worth $5 million.

Street value? Maybe five or six grande lattes.

Thursday, November 15, 2007

Tactical Estate Planning?

Today's office-humor cartoon from The New Yorker shows a young family at home. Dad has answered the phone and now turns to his wife:

"They say we can go there for Thanksgiving or they can cut us out of the will. Our choice."

Monday, November 12, 2007

Why Google's Multitude of Multimillionaires Stay Rich

This afternoon I came across a fascinating story relating to my earlier post about all the new wealth at Google.

The best investment advice you'll never get appeared in last December's San Francisco magazine:

As Google’s historic August 2004 IPO approached, the company’s senior vice president, Jonathan Rosenberg, realized he was about to spawn hundreds of impetuous young multimillionaires. They would, he feared, become the prey of Wall Street brokers, financial advisers, and wealth managers, all offering their own get-even-richer investment schemes. Scores of them from firms like J.P. Morgan Chase, UBS, Morgan Stanley, and Presidio Financial Partners were already circling company headquarters in Mountain View with hopes of presenting their wares to some soon-to-be-very-wealthy new clients.

Rosenberg didn’t turn the suitors away; he simply placed them in a holding pattern. Then, to protect Google’s staff, he proposed a series of in-house investment teach-ins, to be held before the investment counselors were given a green light to land.
The teachers were among the greatest investment thinkers and scholars:
Nobel Laureate Bill Sharpe
Random Walker Burton Malkiel
And, of course, "Saint Jack," the Old Tiger himself, John Bogle.

Those poor brokers, private bankers and assorted wealth managers waiting in the wings! They must have had tough sledding when they finally got to make their sales pitches.

Death by Greed?

Could many emerging affluents and high-net-worth individuals be sick with greed? That's the theory Peter Whybrow discussed on Marketplace this morning: "Our need to constantly have more may be a disease. A mental illness, perhaps a physical one."

Whybrow is the author of American Mania: When More Is Not Enough.

Sunday, November 11, 2007

Where Multimillionaires Grow Like Weeds

Bank of America and other wealth-management organizations seeking to connect with "today's wealth" needn't look much further than Google.

So reports The New York Times, illustrating the point with the case of Bonnie Brown. Newly divorced in 1999, on a lark Ms. Brown answered Google's ad for an in-house masseuse.
Ms. Brown . . .now lives in a 3,000-square-foot house in Nevada, gets her own massages at least once a week and has a private Pilates instructor. She has traveled the world to oversee a charitable foundation she started with her Google wealth and has written a book, still unpublished, “Giigle: How I Got Lucky Massaging Google.”
By unofficial estimate, "1,000 people each have more than $5 million worth of Google shares from stock grants and stock options."

Saturday, November 10, 2007

To Build Wealth, Use Positive Thinking

In his Science Journal column (subscription), The Wall Street Journal's Robert Lee Hotz reports on recent studies suggesting that our brains are built to look on the bright side.

Research by economists at Duke indicates
that optimism pays, at least when applied in moderation:
Optimists, the Duke finance scholars discovered, worked longer hours every week, expected to retire later in life, were less likely to smoke and, when they divorced, were more likely to remarry. They also saved more, had more of their wealth in liquid assets, invested more in individual stocks and paid credit-card bills more promptly.

Yet those who saw the future too brightly -- people who in the survey overestimated their own likely lifespan by 20 years or more -- behaved in just the opposite way, the researchers discovered. Rather than save, they squandered. They postponed bill-paying. Instead of taking the long view, they barely looked past tomorrow. Statistically, they were more likely to be day traders. "Optimism is a little like red wine," said Duke finance professor and study co-author Manju Puri. "In moderation, it is good for you; but no one would suggest you drink two bottles a day."
In only one profession does optimism seem a drawback: The law. Pessimistic law students at UVa "got better grades, were more likely to make law review and, upon graduation, received better job offers."

Friday, November 09, 2007

Baby boomers being left out of parents' wills

Boomers may see their inheritances redirected to their kids, says this dispatch from Australia:
It has been said that Generation Y, people born between 1978 and 1992, are likely to be the first generation in history that are financially worse off than their parents," said [Robert Monahan, senior estate planner at Australian Executor Trustee].

Grandparents seem to be picking up on this dramatic shift in fortunes and using their wills to do something about it.
Have you noticed a similar trend in this country?

AMT patch uncertainties increase

Earlier I noted that there is considerable opposition in the Senate to the "offsets" included in the House version of the AMT patch. The most cogent objection, from a theoretician's viewpoint, is that they are using permanent tax increases to fund temporary tax cuts, which is never good practice. Beyond that, there are objections to the specific tax increases that have been selected.

Now, according to Tax Analysts ($), the White House has threatened to veto the House bill if it includes those provisions.

That's a pretty high stakes game of chicken. I begin to believe that the reason the AMT patch has been delayed for so long was precisely to be able to call the President's bluff on this. If the bill is passed and vetoed before Thanksgiving, which would seem to be very unlikely to me, they would have time to come back in December with a compromise version. IRS is already making plenty of noise about the problems of a December tax code change, so it's clear they are preparing for it.

But what if the House bill is presented to the President in December? A veto then would most likely kill the chance to fix the AMT for 2007, so 20 million more taxpayers would really get to pay this tax. Who would win and lose in the political fallout? It's not obvious to me, especially when you consider that the majority, perhaps the vast majority, of those who will be paying the AMT for the first time will be Democrats. (The impact of the AMT is highest on the coastal states with the highest state tax regimes, recently the blue states.)

Do the Democrats shore up their base by taxing it, because they can blame Bush for a veto they will paint as protecting extravagently compensated hedge fund managers? Or will the esteem for Congressional incumbents fall even lower than it is already?

Thursday, November 08, 2007

Are the New Rich Different?

Today Robert Frank blogged about the new rich:
A new study from U.K.-based Davies Hickman, commissioned by British Telecom, says the old view of money is “formal, conservative, ‘leather and wood,’ exotic locatons, polo, Bentleys and yachts.” The new rich, by contrast, are more interested in “stealth wealth” and “demonstrating their individuality and uniqueness.”

True — to some extent. Today’s rich are obviously different from Old Money. Yet I’m always surprised at how thoroughly today’s rich try to mimic the established wealthy. The aristocratic sport of polo, for instance, is thriving in Palm Beach and the Hamptons — Old Money haunts taken over by New Money.
* * *
Nelson Aldrich, the Aldrich scion and author of “Old Money,” explained to me once how New Money craves the respect and status of Old. New Money may make fun of the “snooty blue-bloods,” but privately the new rich spend much of their time trying to join their boards, win their friendships and, most of all, get their approval. And considering the alternative, all New Money wants to be Old Money some day.
Perhaps we should let the experts have the last word:

Fitzgerald (updated): "The new rich are very different."

Hemingway: "Yes. They have more money."

Love, Hate and Estate Planning

There's a play you should see if it reopens in the spring, writes David Adler for Trusts and Estates:
Horton Foote's Dividing the Estate, a play about family interdependence, love, hate and estate planning, had a limited run, Sept. 27 to Oct. 28, to critical acclaim in New York City. The producers are hoping to bring it back in the spring. If it's on the boards again, wealth advisors and their clients are well-advised to see the production.

What should IRS do in the countdown to an AMT patch?

The 2007 tax forms were scheduled to go to the printer yesterday, so they probably did. The House has scheduled a Friday vote on an AMT patch for 2007, essentially a retroactive tax cut. Senate action is uncertain, as is the outcome over whether the AMT patch should be offset by new taxes, and if so which ones. Obviously the AMT patch will have a big effect on the forms, as well as on IRS processing of returns. How should very late legislation affect what IRS has to do?

There's a difference of opinion, Tax Analysts ($) reports:
Acting IRS Commissioner Linda Stiff, echoing her predecessor, former IRS Commissioner Mark Everson, has maintained that the IRS must prepare its forms and processes for the filing season strictly according to current law, regardless of impending tax legislation. Stiff has said the IRS will need 10 weeks from the date of any currently pending tax bill's enactment to begin processing returns. Late enactment will affect return processing for up to 50 million taxpayers and will delay up to $75 billion in refunds, Stiff said.

But [National Taxpayer Advocate Nina] Olson said at a National CPA/IRS Tax Issues Meeting in Washington that she has received no satisfactory response after repeatedly requesting clarification on what prevents the IRS from preparing for the filing season by anticipating legislation.

Olson acknowledged that 'putting odds on what Congress will do is very, very difficult.' However, the heads of the congressional taxwriting committees have written to the IRS outlining the parameters of alternative minimum tax relief they intend to pass before the end of the year. Olson said it makes sense, given the circumstances, to program the systems in anticipation of the law changes.
I can't agree with Olson's assessment. It might make sense to do nothing, to suspend the printing of the forms, to avoid incurring costs that will almost certainly be wasted, and perhaps to focus Congressional attention on the urgency of the situation, but relying on the heads of the taxwriting committees for preparing tax forms would be foolish.

BTW, the House draft includes an "extra standard deduction" for those taxpayers who own their homes and pay real estate taxes but don't itemize their deductions. Married taxpayers would get a $700 bump. You gotta love that tax simplification.

Tuesday, November 06, 2007

Noted Blogger Receives Medal of Freedom

Most bloggers (present company not excluded) post mainly in order to see what they have to say. A rare few are worth reading. Prime example, the Becker-Posner blog.

Fifteen years ago, Gary Becker won the Nobel Prize. Yesterday, President Bush presented him with the Presidential Medal of Freedom.

Bank trust departments don't charge enough

From an e-mail I just received from
Most bank trust departments are undercharging for their services, according to the Fiduciary Income Report analysis of stand-alone trust companies.

The report is a study of trust companies' income and expenses, examining both profit margin and return on assets.

According to the report's authors, trust companies that focus or limit their services to one or two account categories (such as, personal trusts, employee benefit, investment management agencies, or custody accounts) report significantly higher profit margins.

Trust companies on average netted 23 cents for every dollar of gross revenue, significantly higher than average net earnings reported by bank trust companies.
The report also revealed that salaries are the biggest expense at trust departments, and that they have surprisingly small marketing budgets. I think I knew that already.

"My, That's a Big Boutique You Have!"

Thanks to Bessemer Trust, even those of us not subscribing to Barron's Online can read their recent cover story on private banks.

As in prior years, Barron's contrasts private banking behemoths with the boutiques.

Do the perceived advantages of each still exist?

Consider the biggies: Merrill Lynch and Citigroup. These behemoths are losing billions and billions because they were so willfully ignorant as to think subprime mortgages could be sliced and diced into safe investments. Would you entrust your family fortune to them?

Entrusting the family fortune to a specialized fiduciary organization seems the better idea. Yet Bessemer Trust, for example, manages over $50 billion and maintains offices all over the U.S., not to mention London and the Cayman Islands. Can Bessemer still claim the status of a boutique?

Saturday, November 03, 2007

Vitriol From Beyond the Grave

In a note to Randy Cohen, resident "ethicist" at The New York Times, Susan Jackson describes a testator from the Dark Side:
I recently received a vitriolic diatribe from a friend who died of cancer four years ago. In her will, she ordered her diary entries transcribed and sent to each person she wrote about. Her executor was, I guess, legally bound to follow her wishes, but should he have, knowing that this would more than likely hurt the recipients?
What do you think the executor should have done?

Friday, November 02, 2007

John Bogle: The Old Tiger Still Roars

In 1951 John Bogle wrote his senior thesis at Princeton. His subject was mutual funds. More than half a century later, the founder of Vanguard and godfather of indexing is still writing material of Ivy League caliber, delivered in the form of books and lectures.

Two recent lectures deserve attention.

His speech to FINRA deals with the growth and deterioration of the mutual fund industry:
[T}he past half-century has been one in which a beautifully simple concept—owning a broadly diversified list of investment-grade stocks (and/or bonds) at low cost, investing for the long-term rather than speculating for the short-term, designed for fund investors who buy and hold for the long-term—has become a complex, expensive, confusing exercise in, to a greater or lesser degree, speculation, giving rise to a huge depletion of wealth for the 100 million American families who own mutual funds.

In that half-century period, we—at least, too many of us—have tried lots of clever, faddish ways to gather more assets from the investing public—option-income funds, “government plus” funds, short-term global funds, adjustable-rate preferred-stock funds, to say nothing of funds investing in “sin” stocks, etc. Nearly all of them have come and gone, and fund failures have now risen to an annual rate of about 5 percent. Not bad? Only until you realize that at that rate, a decade hence, fully one-half of today’s 4700 equity funds will be gone—consigned to the dustbin of history.
In Black Monday and Black Swans, Bogle widens his gaze, contemplating the human frailties that contributed to the Crash of '87 and the Mortgage Derivatives Meltdown of '07:
. . . probability is a slippery concept when applied to our financial markets. We use the term risk all too casually, and the term uncertainty all too rarely. This distinction was first made by the late University of Chicago economist Frank H. Knight, who spelled it out in his seminal work, Risk, Uncertainty, and Profits, in, well, no uncertain terms.

Here’s what Knight wrote:
. . . uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated. The term “risk,” as loosely used in everyday speech and in economic discussion, really covers two things which . . . are categorically different. The essential fact is that “risk” means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character. A measurable uncertainty, or “risk” proper, is so far different from an immeasurable one that it is not in effect an uncertainty at all.

Knight continues:

The facts of life in this regard are in a superficial sense obtrusively obvious and
are a matter of common observation. It is a world of change in which we live, and a world of uncertainty. We live only by knowing something about the future; while the problems of life or of conduct at least, arise from the fact that we know so little . . . in business as in other spheres of activity. We act according to (our) opinion, of greater or less foundation and value, neither entire ignorance nor complete information, but partial knowledge.
Later in the speech, Bogle returns to themes covered in his 2005 book, The Battle for the Soul of Capitalism.
[C]apitalism has changed for the worse. In a half-century we’ve moved from an ownership society where individual shareholders owned 92 percent of all stocks and financial institutions owned only 8 percent (Chart 6) to an agency society in which institutional shareholders now own 74 percent of all stocks. But we haven’t changed the rules. These mutual fund and pension fund managers have largely ignored the interests of their principals—fund shareholders and pension beneficiaries. To restore balance to the system, we need a new fiduciary society in which the interests of these 100 million principals—the last-line investors of America—come first.

John Bogle doesn't much care for most wealth managers. He feels their fees and commissions turn the zero-sum game of trading stocks into a losers game. Wouldn't be surprised if most wealth managers didn't care much for Bogle. But despite his idealism (or because of his idealism) the Old Tiger, whom Time places among the world's 100 most important and influential people, deserves close attention.

Thursday, November 01, 2007

Know what an Ultra-High-Net-Worth Investor Looks Like?

If you think you can spot wealth on the hoof, think again. That's the warning from Robert Frank in The Wealth Report (subscription):
I was talking to a Jaguar salesman last week and asked him what the hardest part of his job was.

“You can’t tell who’s rich anymore,” he said. “It used to be if someone walked in with jeans and a T-shirt I could ignore them or ask them to leave. Now that guy could be a billionaire. You have to be nice to everybody these days.”