Monday, March 31, 2008

Monroe, Ledger and the Right of Publicity

Marilyn Monroe was a New Yorker, not a resident of California, when she died. If this ruling by a U.S. District Court stands, Monroe's estate no longer will be able to make money licensing her image. In New York, unlike California, a celebrity's right of publicity ends at death.

Post-mortem tax planning by Monroe's executor was a factor in the court's decision: "In the 1960s, the judge noted, the executor . . . told California tax authorities that Ms. Monroe was a New York resident, so as to limit the California inheritance taxes owed by the estate."

Heath Ledger's estate could be rolling in money, writes the Sidney Morning Herald. Ledger's most memorable role since Brokeback Mountain may be his posthumous performance as The Joker in the upcoming Batman flick, The Dark Knight.

Ledger's estate, the SMH assumes, will have no problem cashing in on his right of publicity:
While it seems far too soon to contemplate for Ledger, stars can still be hot properties in the US even after death.

The management and marketing company CMG Worldwide represents the estates of close to 250 famous personalities from entertainment, sport and other fields. Only 50 are still alive.

The company's stable of what are discreetly called "celebrities of yesterday" includes James Dean, Marilyn Monroe, Marlon Brando, Errol Flynn, Malcolm X, Amelia Earhart, Oscar Wilde, Mark Twain, Babe Ruth, Jesse Owens, Frank Lloyd Wright, Jack Dempsey and Chuck Berry.

It negotiates more than 2000 deals a year for advertising campaigns, merchandising (including T-shirts, calendars, jewellery and more unlikely items such as boogie boards and oven mitts), video games, music videos and occasionally cameos in new movies.
Whatever the value of Ledger's estate, it is expected to benefit his daughter, Matilda. But wait! What if Heath left another daughter?

Friday, March 28, 2008

New investment chief for Harvard

Following up upon JLM's note on women as foundation managers, Harvard Managemet, which manages Harvard’s $34.9 billion endowment is now headed by a woman, Jane Medillo.

Mohamed El-Erian has returned to Pimco after two years at the helm.

As one reads the article, one can't escape the impression that Harvard is looking for a better communicator at the top spot, as opposed to maximizing returns. Still, Mendillo reportedly is following the path blazed by David Swenson at Yale.

Retire and Get Richer?

Headline from yesterday's Wall Street Journal: "Household Wealth Rises as Retirees Age."

Don't believe it? You're right. The Federal Reserve studied a group of householders over 70. From 1998 to 2004, the group's median wealth dropped over 20%.

But that's not what the study was actually about.

Imagine someone age 75 buying a life annuity for $100,000. Now imagine someone age 95 buying a life annuity for $80,000. Which one will receive the higher annual payout?

The 95-year-old. The older annuitant's much shorter life expectancy more than offsets the lesser amount of available wealth.

To put it another way, as the Fed study does, the older annuitant possesses greater "annualized wealth."

The study is discussed on the WSJ economics blog here. You can read the Fed study here.

Retirees aren't getting richer. But most of those studied appeared to be on course to run out before their wealth does.

Will Boomers be as fortunate?

Birthright Renounced!

Give a cheer and one cheer more for Little England, the land from which we inherited the common law and the concept of trusts.

Unfortunately for Peter Phillips, the laws of England remain tainted with religious prejudice. The Act of Settlement of 1701 prohibits any Roman Catholic from having access to the throne, even through marriage.

As a result, The Telegraph reports, the son of the Princess Royal and eldest grandson of the Queen will relinquish his right to the throne (Peter's 11th in line) to marry his Catholic girlfriend, Autumn Kelly.

Let's hope Autumn receives chapeau-shopping guidance (see photo accompanying the Telegraph story) before the May 17 wedding at St. George's Chapel in Windsor Castle.

Thursday, March 27, 2008

Bank Brokerage: Where the Money Is

"Don't like our CD rates? Step right over here and let that nice saleperson sell you an annuity."

Banks get plenty of bad press for selling expensive annuities to seniors who need them like they need holes in their heads. In The Wall Street Journal, Jeff Opdyke told how bank brokers ripped off his grandmother and tried to rip off his mother.

Will the Opdyke family turn to those banks for trust or other wealth-management services? Don't think so.

So why do banks persist in dragging customers into close confinement with bank brokers?

Here's the answer, from the appendix to the Rand study of brokers and advisers mentioned in an earlier post:
Bank-owned brokerage firms have much higher profit margins than do nonbank brokerage firms (28 percent versus 14 percent, pretax, as of 1999). A bank-owned brokerage firm has ready access to existing clients, which lowers marketing costs, and, due to easy customer access, representatives are paid less, which lowers compensation costs. Bank-owned brokerage firms also focus on higher-margin products, such as annuities and funds, as opposed to stocks and bonds. Moreover, the bank-owned brokerage firm is reported to offer a narrower product selection with less research, all of which reduces expenses.

Wednesday, March 26, 2008

Trust marketing in a down market


The Wall Street Journal is reporting that Stocks Tarnished By 'Lost Decade', with the S&P 500 back where it was nine years ago. We're in the habit of extolling stocks for the long term, but the most recent edition of the Ibbotson Yearbook reveals that over the past ten years the total return of long-term government bonds beats large cap stocks. $1,000 in stocks at the beginning of 1998 grew to $1,780 in the next ten years, while the same $1,000 in bonds grew to $2,020.


What does one say to trust prospects about this state of affairs?

Saturday, March 22, 2008

Women and Investing

The bad news
Women may handle the household checkbook and bill-paying, but too many shy away from investing and long-term financial planning, writes M. P. Dunleavey in The NY Times.
[T]he aversion of many women to money tasks is still surprisingly common — and so is the risk they assume, says Tahira K. Hira, professor of consumer economics at Iowa State University at Ames.

In a study, “Gender Differences in Investment Behavior,” Professor Hira and her co-author C├Ązilia Loibl, assistant professor of consumer sciences at Ohio State University, studied more than 900 randomly selected households with incomes of $75,000 or higher. The study forms a chapter in “The Handbook of Consumer Finance Research” (2007, Springer).


The authors found that while “men were more engaged in their personal finances, generally speaking, women tend to do more of the day-to-day tasks,” Professor Hira said. They tended to abdicate their financial roles when it came to planning for the future, saving and investing. “The majority of women found investing to be stressful, difficult and time-consuming,” she said.
The good news
The chief investment officers who handle billions of dollars for big university endowments and private foundations are increasingly likely to be women, another NY Times article reports.

Women manage 10 of the 50 largest endowments and foundations, overseeing a combined $60.6 billion. And "they all outperformed the median annual return of 17.5 percent for university endowments, as measured by the National Association of College and University Business Officers."

Thursday, March 20, 2008

Spring, 2008: One Crisis After Another?

Reading The New York Times is a discomforting experience for wealth managers these days.

From David Leonhardt's much-discussed article yesterday:
Raise your hand if you don’t quite understand this whole financial crisis. . . . This may not be entirely comforting, but your confusion is shared by many people who are in the middle of the crisis.

“We’re exposing parts of the capital markets that most of us had never heard of,” Ethan Harris, a top Lehman Brothers economist, said last week. Robert Rubin, the former Treasury secretary and current Citigroup executive, has said that he hadn’t heard of “liquidity puts,” an obscure kind of financial contract, until they started causing big problems for Citigroup.

I spent a good part of the last few days calling people on Wall Street and in the government to ask one question, “Can you try to explain this to me?” When they finished, I often had a highly sophisticated follow-up question: “Can you try again?”
From today's page-one article on commodity speculators:
Undeterred by the kind of volatile downdrafts that sent oil plunging 4.5 percent Wednesday, to settle at $104.48 a barrel, large funds and rich individual investors have sent a torrent of cash into this arcane market over the last year, toppling records for new money flowing in.

Small investors are plunging in, too, using dozens of new retail commodity funds to participate in markets that by one measure have jumped almost 20 percent in the last six months and doubled in six years.

* * *
The biggest speculators and lenders in the commodities markets are some of the same giant hedge funds, commercial banks and brokerage houses that are caught in the stormy weather of the equity, housing and credit markets.

As in those markets, an evaporation of credit could force some large investors — especially hedge funds speculating with lots of borrowed money — to sell off their holdings, creating price swings that could affect a host of marketplace prices and wipe out small investors in just a few moments of trading.

Tuesday, March 18, 2008

Good news, bad news for trust departments

Fiduciary assets grew nearly 20% in 2007, A. M. Publishing reports. Total nonmanaged assets grew 17%, while managed personal trust assets grew 5%.

Revenue grew 12.5%, to a record $32 billion. Net fiduciary earnings were up 22.3% compared to the prior year, according to the FDIC.

On the other hand, Mr. Macdonald refers below to a nasty item in today's New York Times on changing trustees. A sample:
Dissatisfaction with trustees — particularly corporate trustees rather than individuals — has been growing over the last five years, those experts say. Most complaints center on investment performance, mostly because beneficiaries have become more financially sophisticated and more types of investments are now available.

Poor service — including high turnover among trust officials and phone calls that are not returned — is another common complaint.
One trust lawyer was quoted as saying that trustee complaints came to his attention about twice a year five years ago, but now are coming in every week or two.

Stories like that make the trust marketer's job very difficult indeed.

Solving Problems of Wealth

In a special section, Wealth and Personal Finance, today's New York Times explores the problems of wealth.

What if Muffy's UTMA (Uniform Transfers to Minors Act) account has skyrocketed to $5 million and she'll be able to collect her loot in a couple of years?

How do you get rid of a corporate trustee that keeps rotating trust officers and never returns your calls?

Wealth poses a host of perturbing problems, according to the Times. Becoming an Ultra High Net Worth Individual almost sounds like more trouble than it's worth.

Happily, good wealth managers can help UHNWIs deal with the issues.

Alternatively, there's the free-market solution: Think of all the Bear Stearns people who saw their wealth-management concerns vanish over the weekend!

Monday, March 17, 2008

A Moment in 1932

In the preceding post, Jim Gust (and Jim Lileks) revisit the 1930's and '40's.

Shall we join them? We'll start by looking in on Congress. It's June, 1932. The Banking & Currency Committee has resumed its investigation of buying & selling practices on U. S. stock exchanges. (Did evil-doing shortsellers actually cause The Crash and the mayhem that followed?)

Thanks to this report from the Time archives, you can glimpse Senator Glass (yes, that Glass) at work.

A moment of clarity

James Lileks, the Bleat: "I love studying the thirties and forties, but not first hand." Could it happen again? Read the whole thing.

Connecticut Wealth Goes South

"The state of Connecticut has just released a study of the state's estate tax and its impact on residents," writes Julie Jason in her weekly column. "Residents are fleeing the state, and by doing so, may be having a negative impact on the economic activity of the state."
From 2002 to 2006, Connecticut lost 22,606 households, representing $1.2 billion of income. Over 16,000 households moved to Florida, the state with the largest migration. (Arizona, North Carolina and New Hampshire were next in line.) These household numbers are net losses (subtracting people moving out of the state from those moving in).

The average household income of those moving from Florida to Connecticut was $45,830, while for those moving from Connecticut to Florida was $70,067, representing a net loss of 34.6 percent per household.
State death taxes became a problem as a result of the Bush tax cuts. Besides increasing the exemption from federal estate tax in stages, the 2001 legislation did away with the credit against federal estate tax for state tax paid. As a result, states could no longer levy painless estate taxes – so-called "sponge taxes" that soaked up the amount of the credit without added cost to the families being taxed.

The Connecticut study – you can access it here – includes a helpful summary of how various states have adjusted to the post-sponge-tax era. Connecticut's current estate tax has proved especially irksome to residents. Instead of an exemption from tax, Connecticut merely uses a $2 million threshold:

If a Connecticut resident leaves an estate of $2 million or less, no tax.

If he or she leaves a $2.1 million estate, however, Connecticut tax applies to all $2.1 million. Result: a tax of more than $100,000.

The State study included a survey of Connecticut CPAs and estate and probate attorneys. Most respondents said Connecticut estate tax and/or income tax contributed to client decisions to change domicile.

Average wealth of those changing their domicile to Florida or elsewhere: over $7 million.

Now do you see why Northern Trust has over two dozen offices in Florida?

Sunday, March 16, 2008

Could Glass-Steagall make a comeback?

Via Ed Cone, some people attribute the current crisis in the financial markets, and the emergence of financial engineering leading instruments that no one understands, to the deregulation of Gramm-Leach-Bliley Act in 1999.

I don't see that interstate banking, for example, has provided much benefit for me, though those barriers came down long before 1999.

UPDATE: Instapundit talks about this, and posts some interesting comments.

Saturday, March 15, 2008

“Risk Assessment” Revisited

[Last August President Bush strolled into the Rose Garden and told investors to stay calm. Owners of derivatives built from subprime mortgages merely needed a little time for "risk assessment." Sounded like trouble to us, as indicated in this post.]


We should have known from the start. The bears have left the campgrounds and headed for Wall Street.

The morning after the Dow's first 3% drop, President Bush and his economic advisers marched out to urge investors to stay calm. Why so much fuss over a 3% drop, not even a third of the way to a market correction?

Did the White House know something the rest of us did not?

Continue reading here . . .

Friday, March 14, 2008

Lions and Tigers and Bear Stearns. Oh, My!

Some weeks ago, Yale economist Robert Shiller wrote an op-ed piece for the NY Times. Sounded alarmist. Shiller advised tripling FDIC coverage on bank deposits, then doing the same for SIPC coverage of brokerage accounts.

Was Shiller really expecting banks or Wall Street firms to fail? "Get real," I thought.

That was January. This is March. The other day, American Banker reported that the watch list of banks sick enough to maybe die had about four-score names on it. Today, the NY Times tells us Bear Stearns "now faces the prospect of the end of its 85-year run as an independent investment bank."

How did we get into this mess? How did the making and reselling of mortgage loans obtained by people who couldn't pay them back – much less afford a downpayment– create such toxicity that august financial institutions around the globe have turned into cowardly lions?

In a more recent op-ed piece, professor Shiller looks at why even experts can suffer from herd behavior:
If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks.

Were all these people stupid? It can’t be. We have to consider the possibility that perfectly rational people can get caught up in a bubble. In this connection, it is helpful to refer to an important bit of economic theory about herd behavior.

Three economists, Sushil Bikhchandani, David Hirshleifer and Ivo Welch, in a classic 1992 article, defined what they call “information cascades” that can lead people into serious error. They found that these cascades can affect even perfectly rational people and cause bubblelike phenomena. Why? Ultimately, people sometimes need to rely on the judgment of others, and therein lies the problem.

Mr. Bikhchandani and his co-authors present this example: Suppose that a group of individuals must make an important decision, based on useful but incomplete information. Each one of them has received some information relevant to the decision, but the information is incomplete and “noisy” and does not always point to the right conclusion.

Let’s update the example to apply it to the recent bubble: The individuals in the group must each decide whether real estate is a terrific investment and whether to buy some property. Suppose that there is a 60 percent probability that any one person’s information will lead to the right decision.

* * *
Suppose houses are really of low investment value, but the first person to make a decision reaches the wrong conclusion (which happens, as we have assumed, 40 percent of the time). The first person, A, pays a high price for a home, thus signaling to others that houses are a good investment.

The second person, B, has no problem if his own data seem to confirm the information. . . . But B faces a quandary if his own information seems to contradict A’s judgment. In that case, B would conclude that he has no worthwhile information, and so he must make an arbitrary decision — say, by flipping a coin to decide whether to buy a house.

The result is that even if houses are of low investment value, we may now have two people who make purchasing decisions that reveal their conclusion that houses are a good investment.

* * *
Mr. Bikhchandani and his co-authors worked out this rational herding story carefully, and their results show that the probability of the cascade leading to an incorrect assumption is 37 percent. In other words, more than one-third of the time, rational individuals, each given information that is 60 percent accurate, will reach the wrong collective conclusion.
A generation ago, another Yale scholar, psychologist Irving Janis, became interested in herd behavior because of the Bay of Pigs fiasco. How could JFK and his advisers not have recognized the hare-brained scheme for what it was? Janis saw the problem as 'groupthink." This Yale Alumni Magazine story explores his theory.

Thursday, March 13, 2008

Would an accessions tax be better than an estate tax?

That was the argument made by academics before the Senate Finance Committee hearing mentioned below by JLM, according to Tax Notes Today ($). Some explicitly argued that transfer taxes should be lower on bigger families.
Prof. Lily Batchelder of New York University School of Law advocated a wealth transfer tax structure in which recipients with lifetime inheritances greater than a $1.9 million exemption would pay individual income tax plus a 15 percent surtax. Batchelder said such a scheme would be a revenue-neutral replacement for the estate tax in 2009, which will impose a 45 percent tax on estates after a $3.5 million exemption.
A family business being split among four children would thus be exempt up to a value of $7.6 million. Of course, the impossible valuation questions are left for another day.

I believe that there is no chance of shifting to this approach. Canada provides an interesting alternative: one-half the value of an inheritance is taxed as a capital gain. This has the virtue of piggybacking on the existing income tax collection system, rather than requiring an entirely separate, if interlocking, legal scheme.

Wednesday, March 12, 2008

Replacing the Estate Tax

Today the Senate Finance Committee was scheduled to convene hearings to explore alternatives to the federal estate tax, aka "death tax." The New York Sun editorialized on the prospect.

Many are Millionaires, Far Fewer are Rich

By Spectrem Group's count, the number of U.S. millionaire households grew to 9.2 million last year, up slightly from 9 million the year before.

The number of households with at least $5 million also grew about 2%, reaching 1.6 million.

Now let's look at the rich, as Barron's does this week. (Sorry, you'll have to find the link yourself; your blogger can't justify the expense of an online subscription.)

Today's rich may be divided into three levels, Barron's says.

Beer and Pretzels Rich, $25 million - $50 million. This is now the minimum required to lead a really cushy life without working.

Jetset rich, $50 million - $500 million. A private jet is the first thing people get when reaching this level of rich, Barron's observes. With luck, there's also enough to acquire a pretty nice NYC abode to go along with the farm or vineyard and the place at the beach.

Megayacht rich, $500 million and up. This level of wealth starts to be work but also involves fun choices. "Trevor's playing in the Italian Open. Shall we hop over in the jet or take the yacht and make it a holiday?"

Hey, Barron's must be feeling sorry for all the non-rich millionaires. I was able to access the article here.

Tuesday, March 11, 2008

Wealth Goes International

Evidently, Eliot Spitzer's escort service, Emperors Club, could have provided him with a companion in London or Paris as easily as in Washington, D.C. Wealth knows few borders these days.

One result, more tax and estate planning issues for the wealthy and their advisors to worry about. Seamless Transition, from the February-March issue of Private Wealth, surveys tax and estate factors that may confront those living abroad.

France, for instance, offers special estate planning challenges. An expat may leave his chateau to his wife, but France thinks his children should come first. (One solution, as this article in The Telegraph notes, may be for the expat to assign ownership of a French home to a company.)

Yet another chapter on why you need a will

Heath Ledger's will leaves nothing to his girlfriend or their 2-year old daughter, according the AP. He never updated it to include them.

Had Ledger married the mother of his child, state law might have provided an inheritance for the informal family. Now they must rely upon the kindness of relatives.
Ledger's father, Kim, has said the family would make sure the actor's former girlfriend, actress Michelle Williams, and that their 2-year-old daughter, Matilda Rose, would be provided for, according to published reports.
There should be gift tax consequences for such provisions. No word yet on the value of his estate.

Monday, March 10, 2008

Q. What Costs Americans Over a Quarter-Billion Dollars a Day?

A. Active investing.

Yes, as reported in Mark Hulbert's NY Times column yesterday, a study by Dartmouth professor Kenneth French suggests that Americans now spend about $100 billion a year trying to beat the market.

Back in 1980, Professor French estimates, the comparable figure was only $7 billion.

Included in the $100 billion total are all mutual-fund expenses and fees, trading costs, fees charged by hedgers and other investment managers, etc.

The moral of the study, “The Cost of Active Investing,” is, buy index funds.

Two caveats:

1. Some fees and commissions in effect pay for tax strategies, estate planning tips and other personal-finance guidance, not stock-picking.

2. We need a healthy minority of ever-optimistic active investors to keep the market honest and thus make index-investing practical. This point is being made today by, among others, this post on Seeking Alpha.

Sunday, March 09, 2008

Silos, Private Brokers and Farmers

On March 3, Sallie L. Krawcheck, Citi’s head of wealth management, announced that Smith Barney and Citi's Private Bank would restructure, from “silo-first” to “client-first.” This post on a NY Times blog (which includes the text of Ms. Krawcheck's internal memo) suggested the move could lead to a culture clash:
“Citi had moved from a strong U.S. Private bank, to a more commoditized one, to clearly one that favors the brokerage model,” said Allan Starkie, a private banking industry recruiter at Knightsbridge Advisors. “They are taking private bankers and turning them into brokers.”
Some critics deemed Ms. Krawcheck's "silo" reference dated. As The Wall Street Journal noted almost a year ago, the jargon crowd has moved on. The new in-term is "bucket:"
[T]he humble bucket has become a trendy fixture of corporate boardrooms and PowerPoint presentations. It is pushing aside other business-speak for describing categories or organizational units, such as silo and basket.
But wait! Ms. Krawcheck has history on her side. Check out this 1958 ad from Citi's predecessor, First National City Bank. The trust and investment people were kept in a silo called City Bank Farmers Trust Company!

Friday, March 07, 2008

Steve Jobs on managing through the economic downturn

Apple's Steve Jobs, from the current issue of Fortune:
We've had one of these before, when the dot-com bubble burst. What I told our company was that we were just going to invest our way through the downturn, that we weren't going to lay off people, that we'd taken a tremendous amount of effort to get them into Apple in the first place -- the last thing we were going to do is lay them off. And we were going to keep funding. In fact we were going to up our R&D budget so that we would be ahead of our competitors when the downturn was over. And that's exactly what we did. And it worked. And that's exactly what we'll do this time.
The bold facing is mine. Memo to trust departments: This might be a great time to boost your marketing budgets and outreach to prospects.

I went to Fortune's website to create this link after I read the article in the print version, and discovered that there is a bit more to the interview online. It starts here.

Don't Bank on It; Have an Apple

From What a Difference a Year Can Make in today's Wall Street Journal:
In the crazy, mixed-up, upside-down, recession-fearing world, here is a startling development: The current adjusted market value of Citigroup is $110.6 billion, a scant billion dollars or so ahead of Apple, at $109 billion.

Last year at around this time Citigroup's market capitalization was around $264 billion and Apple's was at $73 billion, according to Capital IQ. Now, it is difficult to compare apples and oranges (or in this case, Apples and Citis). Still, it is worth taking a moment to pause and reflect on this tale of two market caps.

Apple has been racking up the good will of investors, while Citigroup has been losing it. [And] iPods are easier to understand than, say, collateralized mortgage obligations.
At least Citi's shareholders aren't the only ones suffering. Our pain is shared by Citigroup's top investment bankers, who "took as much as 20% more of their bonuses in restricted stock units this year."

How the rich get that way

Following up on the JLM's report below on the Fortunate 400, here's Tom's Herman's Tax Report on the same subject. Noteworthy bits:

• The top 400 had an AGI of $85.6 billion.
• Wages and salaries were just 8.6% of this total.
• As a group they gave $7.56 billion to charity
• 6.89% of AGI was from dividends, 6.7% from taxable interest. Tax-free interest is not reported.
• The big number is net capital gains of nearly $50 billion, representing 58% of AGI.

The report is based upon 2005 data, a pretty good year for stocks.

Yale has enough money already, thanks

Robert Frank at the WSJ's Wealth Report is pleased that Yale Says No to Rich Donors by refusing to sell the naming rights to its new residential colleges. For once, I agree with them. The projected cost of the new colleges is only $600 million. Yale's outsized endowment has likely generated that much tax-free income just since the first of the year.

The next AMT dance begins

Tax Notes ($) reports that the House and Senate budget resolutions each contain a patch for the AMT during tax year 2008. The "cost" of the patch has ballooned to an astonishing $70 billion dollars! For just one year!

The Senate proposes to ignore the cost, the House pretends to pay for it by "closing the tax gap." In other words, ask IRS to just work harder. That doesn't sound like much of a difference to me, but a Conference Committee will be needed iron out the differences in the two resolutions. The key point of the exercise is that after the budget is adopted its elements are protected from a Senate filibuster.

The budgets assume that the current preferential treatment of qualified dividends and long-term capital gains are allowed to expire. If that really happens, I expect a lot more "downside volatility" in stock prices.

Wednesday, March 05, 2008

Fortunate 400: More Income, Less Taxing

Today's Wealth Report at wsj.com tells us that the 400 Americans with the highest incomes have gained a greater share of all personal income. Thanks to the Bush tax cuts, the Fortunate 400 are also keeping more of their earnings and gains:
The IRS report shows that the Fortunate 400 now control 1.15% of the nation’s income — twice the share they controlled in 1995. Over the same period, however, the average income tax paid by this same group has fallen from 30% to 18%. That’s due mainly to the Bush tax cuts.

Many argue that the super-rich pay a disproportionately high share of taxes. And that’s true to a degree, according to the report. The Fortunate 400 paid 1.67% of the nation’s total income tax bill, even though they account for 1.15% of the income.

Wooing the Wealthy

Just happened across a lengthy piece Bloomberg ran on selling hedge funds (aka "private banking") at Goldman Sachs and elsewhere. If you missed it, click here.

Quotable quotes include:

"'My job was a lot of bending over backward and kissing butt,' says a former private banker."

"Rich people as a business model are sensational. They're willing to pay to make it easy on themselves. They don't fight over fees if they see value.''

"Very wealthy clients want to speak directly to the person who is managing their money, not a salesperson."

Tuesday, March 04, 2008

Pavarotti Left a Messy Estate

Luciano Pavarotti, the superstar tenor, lived large but not neatly. Once believed to have a net worth of £200 million (close to $400 million), Pavarotti died leaving a muntain of debts, according to this story in the Guardian.
The Italian tenor died almost £7m in the red, his estate has revealed. The debts emerged after weeks of careful combing through bank accounts and shareholdings held by Pavarotti, who died last September of pancreatic cancer, aged 71. They were filed in a court in Modena last week by notary Giorgio Cariani.
* * *
Under Italian law, 50 per cent of Pavarotti's estate will be split equally between his four daughters, with a further 25 per cent given to his widow. Pavarotti allocated the final quarter to Mantovani, who worked as his secretary during his first marriage. He left his wife of 35 years, Adua, to live with her in 1996.

With the publication of the estate, Pavarotti's American assets, reportedly including three Manhattan apartments, works of art and bank accounts, could again fall under the spotlight. The assets were placed in a trust for Mantovani by Pavarotti in July and it is not yet clear how they will be included in the division of his wealth envisaged by Italian law. Their value is not mentioned in the new document.

An Italian magistrate said in October he would look into the trust after a notary present at the signing was quoted as questioning the lucidity of the ailing Pavarotti, who was taken to hospital in mid-August to be treated for a chest infection. But Luciano Bovicelli, a doctor who witnessed the signing, said the singer was fully aware. 'Luciano was absolutely in control of what he was doing, he was very lucid and present,' Bovicelli said.

Good news on the economic front

Amid the drumbeat of negatives on the economy, the New York Times reports that Companies Are Piling Up Cash. The trend started several years ago:
The increase over the last decade in the amount of cash, as a percent of total assets, for the companies in the Standard & Poor’s 500-stock index has been steep. One study shows that the average cash ratio doubled from 1998 to 2004 and the median ratio more than tripled, while debt levels fell. According to S.& P., the total cash held by companies in its industrial index exceeded $600 billion in February, up from about $203 billion in 1998.
It isn't just the biggest firms that are saving money:
The Stulz team’s study showed that this trend of rising cash ratios was not limited to very large corporations — indeed, the average increase is more pronounced among firms below the top one-fifth of the sample.

Over the same time, the study found, one measure of corporate debt — the net debt ratio, or debt minus cash as a percent of total assets — fell so sharply that, by 2004, it was below zero, where it stayed at least through 2006.

“In other words,” the researchers noted, “on average, firms could have paid off their debt with their cash holdings.”
A good counterweight to the over-indebted consumer sector.

Saturday, March 01, 2008

Most Clients Don't Think Much of Their Wealth Managers

IBM commissioned a study of 1,300 wealth management clients. As reported here, most clients were not "advocates" of the firms serving them. One out of five was antagonistic. Only 40% considered their firm a "trusted advisor."

"Advocates" are loyal, satisfied clients. And, the study finds, they're worth their weight in North Sea crude:
Advocates are over twice as likely as antagonists to consolidate 80 percent of their assets with one firm.

Advocates are 60 percent less likely to be sensitive to fees -- making them more likely to place value on other capabilities instead of focusing only on transaction costs.