Will Four of Five High Net Worth Investors Ditch Their Advisers?

According to a Prince and Associates survey cited by Robert Frank in the Wealth Report, four out of five investors with $1 million or more plan to pull money from their investment advisers. Only one such investor out of fifty would recommend her adviser to a friend.

Perhaps Mr. Prince caught high-net-worth investors on a really bad day – and that's not hard this year. But even if the findings are exaggerated, this sounds like a great time to follow Jim Gust's advice and seek new investment-advisory business.

Never thought I'd read this

Without a trace of irony, the NY Times concludes today's morning update on the drop in the DJIA: "Mainland China’s stock markets in Shanghai and Shenzhen are closed this week as part of a national holiday marking the establishment of China as a Communist country in 1949."

A. G. Edwards Redux?

A recent post here expressed regret that Wachovia had ditched the A. G. Edwards name when it acquired that brokerage firm. Now Citigroup is buying Wachovia's banking operations but not Wachovia's brokerage or fund units.

Will we get to see that A. G. Edwards name again?

The Man Who Shut Down Merrill Anderson

In 1977 The Merrill Anderson Company moved from 100 Park Avenue to Connecticut. Before purchasing our building in Stratford, we leased space in Westport. Our quarters overlooking the Saugatuck River were just across the bridge from Westport's library and shops. Real convenient.

Struggling over a particularly balky article one day, I failed to notice an eerie silence had descended until I opened my office door. Save for one lonely figure at the reception desk, the place seemed deserted.

"Where is everybody?"

"They went down to Baskin-Robbins. Paul Newman's at Baskin-Robbins!"

Paul Newman died September 26 at age 83. Aside from possessing the ability to shut down The Merrill Anderson Company at will, Newman was a successful race-car driver and pioneered what we now know as entrepreneurial philanthropy.

Google will take you to all the lengthy Newman obituaries in the major media. This one from the Hartford Courant is notable for including Newman's own whimsical pocket autobiography:

Paul Newman is probably best known for his spectacularly successful food conglomerate. In addition to giving the profits to charity he also ran Frank Sinatra out of the spaghetti sauce business. On the downside, the spaghetti sauce is outgrossing his films. He did graduate from Kenyon College magna cum lager and in the process begat a laundry business which was the only student-run enterprise on Main Street. Yale University later awarded him an honorary doctorate of Humane Letters for unknown reasons. He has won four Sports Car of America National Championships and is listed in the Guinness Book of World Records as the oldest driver (70) to win a professionally sanctioned race (24 hours of Daytona, 1995). He is married to the best actress on the planet, was number 19 on Nixon's enemy list, and purely by accident has done 51 films and four Broadway plays. He is generally considered by professionals to be the worst fisherman on the east coast."

Newman wasn't much for celebrity appearances around Westport. But if you ever wandered into a fund-raising lawn party at the local historical society, you might have thought the guy tending bar looked awfully familiar.

Money Disorders: Are They For Real?

Many Americans appear to take pride in their lack of money smarts. The other day a commercial for a debt-counseling firm felt it necessary to inform listeners that heavy borrowing, aka "excessive use of credit," was a leading cause of serious indebtedness. News to you?

But what if Americans aren't merely acting dumb about money? What if they're neurotic?

How to Treat a Money Disorder in the NY Times makes money manias seem endemic:

Among the problem financial behaviors identified by psychologists in recent years are: overspending, underspending (a k a Depression mentality), serial borrowing, financial infidelity (“cheating” on a spouse by spending and lying about it), workaholism, financial incest (lording money over relatives to control them), financial enabling (throwing large sums at, say, adult children who then are not motivated to support themselves), hoarding, and plenty of guilt and shame around poverty and wealth.

If country music star Wynonna Judd had not sought therapy, the Times notes, she might still own five Harleys instead of two.

Is the notion of widespread mental money disorders, such as overspending or hoarding, overblown? Before you decide, consider this comment on the national credit crisis in today's NY Times:

"Right now, players throughout the system are refusing to lend and hoarding cash…."

Should somebody call Doctor Phil?

The PTA Plan

I agree with Robert Franks, whom JLM quoted below, on the coming storm in providing finacial services to the affluent. Here's the rest of Franks' thought:

It is no wonder that multifamily offices and wealth-management boutiques are thriving. In the coming months, wealthy clients are going to be on a rampage because of the poor performances of many of their investments. Many will rightly blame the conflicts of interest between in-house product manufacturing and distribution to wealthy clients. The wealthy have plenty of choices when it comes to their business.

We believe that trust departments, especially mid-tier trust departments not affiliated with a mega bank, are uniquely situation to capture this business in the coming year. They are local, they are conservative, and most important, they are fiduciaries and proud of it. We are already getting anecdotal evidence of this phenomenon. Trust departments could telescope several years of new business acquisition into the next several months as the financial services landscape is reshaped.

We'd like to help it along. When the going gets tough, the tough start advertising, we like to say. But to undertake a marketing campaign takes too long and it takes too much money and you don't know at the beginning what it will look like at the end. Except that with Merrill Anderson's trust marketing products, none of these objections has any merit.

We'd like to bundle several of our products to sell as an affluent market penetration and realignment package (AMPRP). But I don't care for that acronym. How about the PTA Plan, or Promote Trust Alternatives Plan? Three elements: 1) expansion of in-bank marketing and referral training (our 21 Ways to Spot a Trust Prospect and Contact electronic referral programs); 2) promotion to the public with Trust & Investment Services for You and Your Familiy, 2009 Edition; and 3) outreach to centers of influence, who are being asked right now, "Who should I have handling my investments?" (we offer Estate Planning Studies and Briefs and Estate Planning Report for reaching these key advisors).

Got a better idea for naming the package?

The Battle over Trust Funds for Pets

In Rich Bitch, an Annals of the Law piece in The New Yorker, Jeffrey Toobin uses Leona Helmsley and Trouble to discuss inheritances for pets:

[T]he clear motivation underlying Leona Helmsley’s will—her desire to pass her wealth on to dogs—is more common than might be expected. Pet-lovers (many of whom now prefer the term “animal companion”) have engineered a quiet revolution in the law to allow, in effect, nonhumans to inherit and spend money. It is becoming routine for dogs to receive cash and real estate in the form of trusts, and there is already at least one major foundation devoted to helping dogs.

Leona's love for Trouble was matched, it seems, only by her disdain for almost all members of the human race. Could this be true of others who leave wealth to those who woof?

Trusts departments are thriving!

Trustupdates.com reports that seven out of ten trust institutions experienced revenue growth during the second quarter of 2008, although as a whole the assets under management declined by 4%. Mid-tier institutions, those with assets from $1 billion to $10 billion, did the best. Their growth was 8%, and assets declined only 1%.

Also noted in the report, about one-third of trust institutions are expected to increase their fees in 2008, which may also drive revenue growth.

Remember this number?

It was only last July that the Congressional Budget Office projected the cost of the loan bailout at $25 billion.

At the time I wrote:

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.

Now we're up to $700 billion, and there's no reason to have more confidence now than there was in July.

Given the grave scope of the mismanagement, and the extraordinary costs, why isn't someone going to jail over this? Why aren't we even talking about that subject?

Robert Frank's Farewell to Citi's Sallie

In The Wealth Report, Sallie Krawcheck's ouster from Citi inspires Robert Frank to criticize the way today's megabanks run their brokerage and private-banking units:

The key to keeping rich investors as clients is to take the long view, accepting the occasional missed trade today for 20 years of steady fees later.

The “jam and cram” school of investment banking–pushing a financial product that the bank needs to sell rather than one the client needs to buy–is profitable in the short term. But it can be deadly in the long term.

It is no wonder that multifamily offices and wealth-management boutiques are thriving.

Trusts and the Turmoil

In today's Wall Street Journal, Arden Dale looks at how bankruptcies and market turmoil affect trusts and corporate fiduciaries:

A merger boom in the late 1990s resulted in the transfer of many trusts, as the acquiring company assimilated the portfolio of trusts into the one acquired.

Nonetheless, it is very important to monitor a merger or other big change at the corporate trustee. It could lead to "service changes on the ground," according to [Robert Sitkoff of Harvard]. For instance, if a merger results in the trust account being transferred to another manager, that person may be further away, less responsive or "simply less known to you," said Mr. Sitkoff.

As for the market turmoil, the bottom-line advice for trust officers is "reach out to your clients."

Baby Boomers Delay Retirement

Wage slaves thinking of early retirement are thinking again, says The Wall Street Journal.

Are those now about to retire really worse off than those who retired at the end of 1999? Many of those retirees started living high on the hog, believing the dot.com bubble would never burst.

Actually, few potential retirees are affected by the volatility of the stock and bond markets. Most will "retire" by drawing Social Security and working part-time. Less than a quarter of workers age 55 and older have put aside as much as $250,000.

Harvard 8, Yale 4

Harvard's endowment outperformed Yale's for the fiscal year ending last June, 8.6% to 4.5%. Most other endowments would have been happy to settle for either of those returns. During the same 12 months, the S&P 500 lost 13%.

"Portrait of a Wall Street Investment Banker" Sells for $17 Million

As Jim Gust reminded us recently, the contemporary art scene often seems a weird, unfunny joke: "Beanie babies for rich people."

Here's an exception – one of those rare cases when art and reality collide, producing an aesthetic statement of unintended significance and unexpected power. Damien Hirst's pickled shark just sold at a Sotheby's auction in London for some $17 million. Though Hirst originally gave his work a different title, it's real subject is obvious:

Wall Street Investment Banker as a Dead Shark

Wealth managers have the unenviable task of explaining how the financial economy jumped the now deceased shark. See Wall Street's Unraveling for Robert Samuelson's helpful summary. For this month's transition from mortgage-derivitives mess to credit-default-swaps disaster, see the WSJ's Worst Crisis Since '30s.

Death taxes and 9/11

Back in 2001, which seems like another century already, Pendyala Vamsikrishna was a software engineer working in California. His wife, Prasanna Kalahasthi, was a grad student at USC. They had been married just two years.

Pendyala was aboard the American Airlines flight from Boston that crashed into the World Trade Center. He had been returning from a business trip.

Although he was not rich, apparently Pendyala was well insured, so his death created an instant estate. That property passed to his surviving spouse, Prasanna. But she was devastated by her husband's death, and committed suicide on October 17, 2001, less than a month into her widowhood. She left notes explaining that she couldn't endure the pain of her loss.

Income and estate tax relief was extended to families of the terrorists victims. Notably, a reduced federal estate tax rate applied to the estates of those who died from "wounds or injuries" suffered during the WTC attacks of September 11, 2001 and April 19, 1995, as well as those made ill by the anthrax attack in 2001.

Prasanna was undoubtedly another victim of the terrorists. But she did not meet the requirements for the favored tax treatment claimed by her estate, a District Court has ruled. An additional $669,552.68 must be paid to the IRS as a result of Prasanna's suicide, funds that must come from the insurance proceeds paid to her when her husband suffered his fate.

I can't quarrel with the District Court's reading of the law here. There'd be no effective limit to who could qualify for tax exceptions if we let Prasanna's estate off the hook merely because it is a tragic story.

But I do think that cases such as this validate the idea that we are talking about a death tax here. Contrary to what you may read elsewhere, "death tax" is the honest name for this payment, and all the other euphemisms are political marketing.

Thought for the Day

“There is the dangerous cliché in the financial world that everything depends on confidence. One could better argue the importance of unremitting suspicion.”

-- John Kenneth Galbraith

"Value Investing" at Lehman Brothers

Clipped from an April 11 Lehman Brothers newsletter:

We have had a long-standing bias in favor of growth stocks in our global style allocation, and over the past year this has worked out well. However, we now make a case for going overweight deep value and underweight growth ….

From the accompanying report:

Value has Become Synonymous with Financials

A global universe of value stocks has become synonymous with Financials, which now comprise fully 80% of deep value stocks…. This concentration of Financials in the group has reached a peak in the past year (Figure 4).

As such, a view of value necessarily comprises a view on the Financials. We think that the sector will rally from here, that it offers extreme value compared with its history….

Take-away for marketers:

1. In the digital age evidence of investment misjudgments is easy to find, hard to hide.

2. Active investment managers should market their skills with vigor, enthusiasm…and a healthy dose of humility.

O.K. Go ahead and enjoy The Mother of All Mondays.

When the Going Gets Tough

Splashed over page one of the NY Times business section Saturday was this eye-catching graphic. Unlike almost all photos or artwork in the Times, it carries no credit line. So congratulations to Anonymous for summing up the fears and limited wisdom confronting today's investor.
The accompanying article, Ron Lieber's Memo to the Uneasy Investor, includes an off-beat suggestion from Brent Kessel of Abacus Wealth Partners:

Mr. Kessel said that if he were an estate-planning lawyer, he’d be calling clients right now to get them to address any half-finished paperwork. “Market corrections are just a foreshadowing of what death is going to feel like,” he said. “We’re all trying to avoid death. That’s what we’re wired to do as human beings.”

Trust and investment pros wishing to follow that advice should check out this WSJ item on the growing use of Directed Trusts by business owners and real-estate developers (good luck, guys!).

Money, Money, Money (and Lawyers)

The Enron settlement gives $7.2 billion to shareholders and a record $668 million (plus interest) to lawyers.

Law firms don't do quite that well with trust and estate cases. Still, billable hours can add up over the years. Gerry Beyer on his blog notes that squabbles have swirled around the estate of Tom Carvel, the soft ice cream king, ever since his death. That was back in 1990. Legal fees to date: $28 million.

The End Is Nigh?

Could Rupert Murdoch have lost his touch this late in his career? Seems an unpropitious time to launch yet another "luxury" periodical. Excessively conspicuous consumption is so last year. Yet here it is: WSJ. the magazine.

Need more extremely expensive wristwatches? How about a $5,100 stainless-steel cellphone? Doesn't your favorite bitch deserve a $10,000 canine wedding dress?

WSJ. isn't all bling bling. Designer Roland Mouret usefully points out an alternative to the hemline theory for predicting the stock market's ups and downs:

[Y]ou can trace socioeconomic trends to shoe heights. Look at the sudden resurgence of flat shoes. The market is diving, so are shoe heights.

The DJIA plunged 280 points today. Beware of more women wearing flats and sandals.

The Battle for Mrs. Astor

British writer and art historian John Richardson mingled with New York's wealthy as head of Christie's U.S. operations in the 1960s and as vice president of the Knoedler gallery in the 1970s. That background allows him to enliven a detailed retelling of the Brooke Astor saga in Vanity Fair.

It's not a pretty story – but, given the circumstances, perhaps an almost inevitable one.