"Bigger isn't better. Better is better."

I was thumbing through the latest issue of Worth magazine, a great source for ads aimed the highest net worth market segment. I was struck by the above six words, found in an ad by FlexJet. They compete with Net Jets, which is I think the firm that invented fractional share ownership of private airplanes. At least I never heard of the concept until I heard about them. In the process, they've reinvented the idea of business air travel.
Net Jets has 750 planes in their fleet, FlexJet has only 100. But their Worth ad was quite effective in turning that sour lemon disadvantage into a refreshing lemonade benefit. They implied that Net Jets has gotten too big, its customers now feel like numbers. The large Net Jets fleet is old, and lacks efficiency. And too frequently the Net Jets people have to rely on outside aircraft to satisfy the requests of their clients. Bigger isn't better. Better is better.

Refreshing to read great ad copy.

The FlexJet website is here. But I didn't see any sign of their advertising strategy in their web pages.

The trust industry seems to be dividing into very big players, and smallish players. But when it comes to delivering high quality personal financial services, is bigger really better?

Go Ivy, Young Person

Trust officers, relationship managers at family offices and other financial advisers often face questions about college from the families they serve.

Is the Ivy League really worth the money?

Is majoring in history instead of business a big mistake?

Judging from the survey reported upon here, the answers are probably "Yes" and "Not necessarily."

Detailed data on what grads of scores of colleges and universities earn, both in terms of starting salary and earnings ten years later, are here.

"No Hedge Funds, Please. We're Wealthy"

Wealthy Investors Cling to Hedge Funds, says The Wealth Report, citing a Bank of America survey.

But hedge funds seem more popular with those who create and sell them than with high-net-worth investors. Of the 400 wealthholders surveyed by BofA, more than three-fourths (308) owned neither hedge funds nor funds of hedge funds.

Wealth Management's Next New Thing – Naturally!

"Wall Street got drunk," President Bush explained. It just couldn't resist all those "fancy financial instruments." Now Wall Street is hung over and talking sobriety.

Will Wall Street relapse? The President seemed to feel the question is when, not if. Increased regulation may offer some protection.. But we probably won't see many arrests for DDUI (Dealing Derivatives Under the Influence).

So how can investors protect themselves? By practicing "Natural Investing."


A Natural Portfolio will consist solely of plain vanilla stocks and investment-grade bonds. Period. (To diversify small accounts, a couple of inexpensive index funds may be necessary – but they'll have to be certified "100% unenhanced.")

Cash will be stowed only in T-bills, or in money-market funds invested in same.

Natural Investing should be an easy sell:

Understandable. Modern businesses aren't simple, but owning their shares has got to be more meaningful than holding the derivatives Tom Wolfe derides as "evaporated cubed."

Educational. Entrepreneurs who cash out will learn the ropes of investing better with a Natural Portfolio. So will lucky heirs. And their education will most likely cost them a lot less than trading sector ETFs.

Socially appealing. Natural investing should attract those who favor natural foods or protecting the environment. (Fight Financial Contamination! No Derivatives!)

Natural Investing! Remember, you heard it here first.

Where in the World are These Amazing Islands?

These islands have $41 million in bank assets for every resident!

On these islands stands a five-story office building with over 18,000 tenants!

Where are we? The Cayman Islands, subject of Senate Finance Committee hearings regarding tax shelters.

“Finding these tax cheats is a bit like a game of cat and mouse, only the mouse is hiding its cheese offshore.”

– Senator Chuck Grassley

Should a Broker's Record be on the Record?

A recent decision by a federal appellate court goes a long way to protect investors, reports Michelle Singletary in The Washington Post. The case involved an allegedly dishonest broker who agreed to pay a complaining client $47,000, but only on the condition that all mention of the dispute be removed from the broker's Central Registration Depository record.

Checking the history of a broker or "advisor" is vital, as vividly illustrated by the case of Robert C. Brown, Jr.

Millionaire's Mistress Awarded $4.5 Million

A Cobb County jury awarded Anne Melican, Harvey Strother's mistress, most but not all of the $6 million she sought from his estate. It's not over until it's over: both Ms. Melican and Strother's kin have filed appeals.

On the real value of trust departments

Hidden away in this item from the WSJ's Wealth Report, Introducing the Richistan Index, is a fascinating tidbit for trust bankers. There's a new index to follow now, the Dow Jones Luxury Index, that tracks businesses that cater to the very wealthiest Americans. The index is down for the year more than the DJIA or the S&P, so maybe there really is a recession going on.

The tidbit that fascinates me, considering how poorly many bank stocks are doing at the moment?

Surprisingly, the top performer on the list is the financial stock, Northern Trust.

Must have something to do with fee income, don't you think?

Are We a Nation of Financial Illiterates?

The Freakonomics column in the New York Times is often entertaining, and sometimes willing to stray from conventional wisdom. Today's column is one such, Are We a Nation of Financial Illiterates?" It answers the question in the affirmative, as one would expect. I was surprised, however, by just how trivial were the questions that so many are unable to answer.

Given that too many know too little of financial basics, what should be done about it? As Stephen Dubner asks it,

what good is it if high-school students learn about Flaubert, biology, and trigonometry if they don’t learn how to take care of their money?

He puts the question to Dartmouth prof Annamaria Lusardi, who is making a career of studying financial literacy. She advocates for more financial education in high school (without displacing any existing courses, please), and by the well-trained (no gym teachers need apply, naturally). Yet she also wants to exclude anyone connected with the financial services industry from the process! ("It is a problem of incentives"; spoken like an academic.)

Looking at the problem another way, the authors' have suggested that fully one-third of Americans are financially literate already. Presumably that group includes 100% of the prospects for trust services. How should that datum factor into trust marketing plans?

Archive this number for future reference

The Congressional Budget Office has reported that the Cost of Loan Bailout, if Needed, Could Be $25 Billion according to the New York Times.

Wouldn't that be great, if it really only costs that much to fix Fannie and Freddie? But I think the cost will be well over $100 billion, for which the CBO acknowledges there is a 5% chance.

In the immortal words of Chief Wiggum, I like those odds.

What is the point of speculating about this cost (and really, we all know that this is pure guesswork)? The $25 billion will be entered as a budget expense, and so Congress will have to cut other spending or raise taxes by that much to comply with the paygo rules.

November election coming up? Best possible time to raise taxes.

The Aging of Estate Planning

It's a perennial estate-planning problem with a 21st-century twist:

Mom has money. Daughter, the potential heiress, is a serial spender and needs the protection of a trust. So Mom puts a trust for daughter into her will. But Daughter talks Mom into writing a new will, one that allows her to inherit outright.

The twist: Mom must be in her 80's at the least. Daughter, a grandmother, is sixty-something. Her son, Jeff Opdyke, tells the story in his Sunday Journal column:

During the dust-up over the altered will, I talked to my mom several times to understand why she wanted the will changed. What I heard is the same confused tension echoed in my interviews with retirees around the country.

Part of her is terrified about the years to come. "I will probably live for another 20 years, and how will I pay for that?" she asked me. She realizes that the money my grandmother leaves behind is the final drop of cash in the spigot she has drawn from for much of her adult life. As such, she knows the best strategy is to stretch this last allotment for as long as she can…. Yet that permanent income stream is at odds with my mom's desire to live a better life today.

Indeed, even as my mom was questioning how to pay for another 20 years, she was arguing against the trust, saying it prevented her from accessing the entire lump sum. "What if I die without having spent the money?" she asked. The implication was clear: She will have wasted a grand consumer opportunity if she dies and there's still money sitting in some trust.

* * *

My mom says that it all basically revolves around a "fear of lack. You fear not having money to live life in the long term, but you also fear not having what you want in life in the short term. And I don't know how to balance that."

As aged heirs and heiresses become increasingly common, those who cannot be expected to handle their windfalls pose a problem. Ditsy young heirs who blow it all can be asked to take care of themselves (Get a job, kid!). Spendthrift senior citizens are likely to look to their adult children for funding. As Opdyke points out, that is not a happy prospect:

I fear I will become my mother's banker. And while I will always make sure my mother isn't destitute, I don't want to take away from my own family's well-being in the future so that my mother can live beyond her means at the moment.

When Investors Throw Caution to the Winds

From Object Lesson in the Yale Alumni Magazine:

A financial bubble bursts, and stock markets around the world are in free fall. Investor exuberance, greed, and folly are widely blamed. How could we all have been so foolish?

The year is not 2000, but 1720. Soaring prices for newly issued stock shares in France, England, and Holland had made speculators of everyone. The streets in Paris, London, and Amsterdam had buzzed with rumors of the Mississippi Company, the South Sea Company, and other unusual new financial firms set up to issue paper money, fund government debts, and write insurance. Spiraling asset prices made heroes of financial engineers. John Law, a former gambler turned French finance minister, quickly became the world's richest man. But when stock prices plunged Law fled the country, taking with him only what he could carry.

John Law is the culprit in the cartoon shown here, drawn by an anonymous contemporary and printed in an extraordinary volume called Het Groote Tafereel der Dwaasheid (often translated as The Great Mirror of Folly). The crash of 1720 was quickly memorialized by artists and writers. By the end of the year, Het Groote Tafereel appeared in Dutch bookshops -- an anonymous multimedia extravaganza, filled with dozens of allegorical prints, plays, and poems about the crash, as well as financial documents about the Dutch Provinces' own bubble companies.

For more on wild and crazy investors and their bubbles, see this Baker Library presentation.

Millionaire Divorcee Posts Details on the ’Net

Two generations ago, one's financial affairs were considered strictly private. So private that the question of whether a wife should be allowed to know her husband's income and net worth was seriously debated.

Times sure do change, as this story from the U.K. Telegraph reminds us. Multi-millionaire ad man Gary Dean, tired of gossip about his divorce settlement, posted the financial details on the internet.

“The Lichtenstein Leak”

Hankering to write a novel of international suspense? With a financial twist? Start taking notes on the Senate report on offshore tax dodging and the hearings now under way.

Caught in the investigative headlights are UBS, the Swiss bank, and LGT, run by the royal family of Lichtenstein.

A sample to get your novelist juices flowing:

The hearing will also include videotaped testimony from Heinrich Kieber, a German citizen and a former low-level employee of LGT, who is in the witness protection program.

In recent years, Mr. Kieber stole LGT client records and turned them over to German authorities, igniting a tax-evasion probe in Germany. Some of the records have made their way to the Internal Revenue Service, which is investigating 100 American citizens with LGT accounts.

In the videotape, Mr. Kieber is disguised and his voice is altered. The royal family of Liechtenstein has hired private detectives to track him down.

The "steel curtain" won't stop estate taxes

Today's Wall Street Journal uses the plight of the owners of the Pittsburgh Steelers to editorialize against the estate tax. That the estate tax forces small businesses out of family ownership and into the arms of corporate buyers is well known, but the problem is more dramatically illustrated with a football franchise. What is the transfer tax value of the Steelers? Who knows, but it surely runs to the hundreds of millions of dollars. The value of football teams has grown enormously in the past decade or so, because they are not making more of them. How can that estate tax liability be funded? At a 45% tax rate, that is a serious amount of cash to raise.

The secondary factor mentioned by the Journal is the possibility that the capital gains tax could soon be shooting up. That gives the co-owners of the team a big incentive to sell the team to a deep pocketed outsider sooner rather than later.

If You Drink, Don't Change Your Will?

Remember The Case of the Millionaire's Mistress? Harvey Strother had an ultra-high net worth and a drinking problem. Now a jury will decide whether his mistress is entitled to most of his estate. According to The Atlanta Journal-Constitution, high-priced legal talent is arguing the case.

Should the estate tax charitable deduction be capped?

Over at the Becker-Posner Blog, Judge Richard Posner discusses whether dogs as a class should really get $8 billion from the Helmsley estate, or if the probate judge should void so eccentric a bequest. See here for our earlier comment.

Posner suggests that so large a gift to, for example, save an endangered species might make sense to most people, while the same one for dogs, who already enjoy substantial support from their human companions, may not. Still, it is not appropriate for judges to second guess the motives of the testator (assuming competency).

However, a fundamental premise of normative economics is the subjectivity of values: value is determined by personal preference, and the preferences of adults who are compos mentis and back their preferences with money are not to be questioned by others unless the expression of those preferences would cause uncompensated harms to unconsenting third partie

Still, the prospect of a multi-billion dollar trust for dogs is so outrageous that Posner suggests an alternative remedy: capping the estate tax charitable deduction.

The size of the Helmsley trust does suggest that it might be sensible to impose a ceiling on the charitable exemption from estate tax. For example, the law might exempt the first $1 billion of a person's charitable gifts (whether made during his or her lifetime or at death), but above that level such gifts would be taxed at the ordinary gift and estate tax rates. It is hard to believe that such a change in law would significantly affect work incentives, and it would therefore be an efficient tax.

Becker agrees that testamentary intentions should be respected, but disagrees on limiting the tax incentives for charitable transfers. Rather, he would like to end the perpetual tax exemption that charitable foundations now enjoy.

The major concern about private charities and foundations is not that they are too large, but that their leaders often perpetuate their organizations beyond any reasonable duration, partly by transforming their goals over time. I believe a case can be made for keeping the tax exemption in place, but changing present laws to require charities and foundations to have limited durations, perhaps 30 years. That is, to introduce a kind of sunset provision for private charities and foundations. If they stayed in business beyond that time period, they would then be subject to significant wealth and income taxes

The John Olin Foundation by design closed its doors after 50 years for this very reason. As more and more capital becomes concentrated in tax-exempt philanthropic hands, proposals such as these will inevitably have to be given more serious consideration.

Are Your Trust Funds Insured?

How much FDIC insurance coverage for bank deposits held in a typical revocable living trust? What about deposits held in A and B trusts following the trustor's death?

The answers get complicated, as this Washington Post article explains.

Trust Officers, This Bud's For You!

If humans had not congregated in cities, we'd have no banks, no stock exchanges, no trust companies.

What's that got to do with beer? Everything, as George F. Will explains in Survival of the Sudsiest:

"The development of civilization depended on urbanization, which depended on beer."

Laying Nest Eggs to Rest

Here's one more of Chase's classic nest egg ads. Like the last one we showed you, it's from 1958.


You'll find no trust or investment-management services at Chase these days. Such functions now come under the JPMorgan brand. What's more, Morgan's new logo will look a lot like the pre-merger one, sans the Chase octagon.

Gone, too, are A.G. Edwards and its nest eggs. Carmichael Lynch of Minneapolis created the Edwards campaign. You can still view some of the commercials via the work link at the agency's web site. Eventually the hard-to-control Edwards nest eggs did get tied down, as seen here. Far as we know, though, they never became securely attached to their owners.

A.G. Edwards hs now been blended into Wachovia Securities. At the time, giving up the respected Edwards brand seemed questionable. At least in the Northeast, Edwards was a better-known name. Its brokers were generally regarded as savvy and service-oriented.

Given the difficulties besetting Wachovia lately, wonder if Wachovia's marketers have any second thoughts?

Postscript: By command of the founder, the term "nest egg" never appeared in ads The Merrill Anderson Company prepared for U.S. Trust, Wachovia or other institutions. The reason, of course, was that Chase had made the term its own. But the founder had another explanation: "Chicken farmers can't afford to leave real eggs in the nests. They use fake eggs. Nest eggs are worthless!"

Art as Investment: You Could Do Worse

"Buy art because you love it, not because you think it will be a good investment." So investment advisers, art dealers and curators have said for generations. Some of them even meant it.

But you could do worse, investment-wise. So learned former hedge fund manager John Devaney. As today's NY Times reports, he made a fortune in mortgage investments and lost it all. Attempting to keep his hedge fund afloat, he sold his jet, his Florida home and his yacht.

Unlike Devaney's bales of dubious mortgage investments, some of his expensive toys fetched a profit. His painting by Renoir, which he bought for $9 million, sold for $13.5 million.

"Art is long, life short," observed Hippocrates. Johann Wolfgang von Goethe expanded on the thought in a fashion Devaney might endorse:

"Art is long, life short; judgment difficult, opportunity transient."

Oil Bubble?

Investors, including pension funds and Wall Street speculators, have sharply increased their commodity allocations since 2003, from $13 billion to $260 billion, The Washington Post reports.

"The increase in commodity prices has been so sharp that some pension managers are worried about a possible crash…. 'It's hard to know which commodities are in a bubble and which aren't,' said Bob Schultze, director of the Virginia Retirement System."

More on Leona Helmsley

Ann Althouse has posted on Leona Helmsley's proposed $5 billion charitable trust for dogs. Scroll down for some entertaining comments from her readers.

Not-So-Private Banking

Normally private banks are the soul of discretion. But sometimes the wider world forces open a window.

UBS now faces IRS demands for the names of Americans who may have been tax-sheltering via Swiss accounts.

Northern Trust finds itself in the spotlight because of a prominent client, Barack Obama. From time to time, the Washington Post reports, the Obamas have had as much as $3 million in investment accounts at Northern. What caught the Post's eye was the "super super jumbo" mortgage Obama obtained to buy "a $1.65 million restored Georgian mansion in an upscale Chicago neighborhood." Was the rate preferential? Why no points?

An Obama spokesperson says Northern adjusted the loan terms to match a competitor's offer.

Bayou Sam Finally Heads for the Slammer

A few weeks ago Sam Israel, the miracle-working hedge-fund manager whose reported returns were always above average, staged his suicide on a bridge over the Hudson instead of reporting to prison. This morning he walked into the Southwick, Massachusetts police station and surrendered.

And you thought Trouble was pampered

The public notoriety last year when we learned the Leona Helmsley left $12 million to her dog while disinheriting her grandchildren is just the set-up for this bombshell. Leona's estate is worth from $5 billion to $8 billion, depending upon how the real estate liquidation goes. Virtually all of that money goes to a charitable trust, and the NY Times now reports that the purpose of the trust is to care for dogs!

The trust's mission is not included in the will or in the trust itself, but in a separate statement.

The two people who described the statement said Mrs. Helmsley signed it in 2003 to establish goals for the multibillion-dollar trust that would disburse assets after her death.

The first goal was to help indigent people, the second to provide for the care and welfare of dogs. A year later, they said, she deleted the first goal.

The Times points out that there were already 7,381 animal-related nonprofit organizations in 2005. If the Helmsley trust is funded at $5 billion, it will be worth nearly ten times the combined assets of all of those organizations.

"It's a dog's life" is about to get a whole new meaning.

“Superlite Financial Advice.” It Pays Well, But . . .

How Jeffrey Epstein built enough wealth to live like a billionaire is something of a mystery, says The New York Times:

He says he manages money for billionaires, but the only client he is willing to disclose is Leslie H. Wexner, the founder of Limited Brands.

As Mr. Epstein explains it, he provides a specialized form of superelite financial advice. He counsels people on everything from taxes and trusts to prenuptial agreements and paternity suits, and even provides interior decorating tips for private jets. Industry sources say he charges flat annual fees ranging from $25 million to more than $100 million.

Last week, the Times reports, Epstein learned he would have to leave his 78-acre island to spend 18 months in a Palm Beach County jail.

Hope he spends his sentence (for soliciting prostitution) writing a book. The wealth-management world would love to learn how to sell advice for $25 million per annum.