Tuesday, May 31, 2011

Harsh Truths About Banking

The New York Times recently moved Joe Nocera from business news analysis to op-ed. In today's column  he salutes Robert G. Wilmers, head of M&T Bank. Read the column and you'll wish you had enough spare change to buy M&T shares.

Nocera includes a link to Wilmers' message to shareholders. It's worth reading. Sample:
In 1980, those with engineering degrees were paid 15 to 25 percent more than finance professionals with comparable education. By 2005, finance professionals with advanced degrees earned 30 to 40 percent more than engineers. It is no surprise then that nearly 25 percent of new employment-seeking graduates of the Massachusetts Institute of Technology and the California Institute of Technology (MIT and Caltech) chose jobs in the financial sector during 2004-2009. When those with engineering and scientific acumen at the highest levels are drawn, instead, to the capital markets, one fears that innovations — and, indeed, new industries — may be stillborn, as a result.
 This month M&T completed its purchase of venerable but troubled Wilmington Trust.

They Didn't Trust Madoff

Bernie Madoff didn't fool everybody. Today's NY Times spotlights two notable examples:

Laura Blank. When she and her husband divorced five years ago, he opted to keep money with Madoff. Laura demanded cash. (Her ex-husband has sued to redo the divorce settlement, an effort that reportedly threatens to shake contract law to its roots.)

Martin Sass. Mr. Sass is not lucky. He started his investment business in 1972, just before the Dow plunged from near its all-time highs. Not lucky, just smart:
Mr. Sass first turned down a chance to get into the Madoff funds in the 1980s when Mr. Madoff, through a representative, refused to tell him how he made his returns. Again, in 2008, the Brooklyn College investment committee considered an investment with Mr. Madoff. Mr. Sass, who was chairman of the investment committee, fought fiercely against the investment and won. 
"Mr. Sass," the Times points out,  "is just not a believer in get-rich-quick deals." Apparently, neither is Laura Blank.

Friday, May 27, 2011

Off For the Weekend!

The illustration is from a Pierce-Arrow ad. Like the Buick ad we showed you, it's from 1931, when the stock market seemed to be recovering and the privileged class did not yet realize they were living in the Great Depression.

Does 1931 seem like ancient history? Try imagining that the back-seat passenger is a young woman in her twenties. Her name could be Huguette Clark.

Here's the full Pierce Arrow ad, complete with a testimonial from Joseph Widener.

Trust Company As Status Symbol

The year, 1931. Buick wants to advertise to the high-net-worth market. How can the illustrator show that a couple still has money after the '29 Crash? Easy. He positions them in front of the bronze doors of a trust company.

Thursday, May 26, 2011

Huguette Clark, Reclusive to the End

Heiress Huguette Clark has been interred without funeral or family in attendance, the Daily Mail reports.

Not yet known: how Clark disposed of her $500 million estate. She is thought to have made a new will a few years ago..

Simplicity ➜ Disruption ➜ Hanky-Panky

Personalized search results? Just give me the standard ones. Serendipity will guide me from there. The other day it led from simplicity to disruption to hanky-panky.

To start with, American Banker reported that Betterment, a site offering investment simplicity, had signed up 4000 customers. Never heard of it.
Betterment launched a year ago at TechCrunch Disrupt with seed money from Bessemer and other angel investors. The start-up hopes to make an investment account as natural an offshoot of a bank account as money market funds became for an earlier generation.. The founders have worked hard to deliver their message clearly and simply. Take a look.

TechCrunch Disrupt? Never heard of it, either. With a couple of clicks I learned that this year's gathering ended yesterday. TechCrunch Disrupt draws developers of apps, web sites and other digital startups, all with visions of IPOs dancing in their heads. Several ideas involve personal finance. ( If brick-and-mortar banks are headed for extinction, can credit cards be far behind? See the NY Times: Payment Method Bypasses the Wallet.)

A TechCrunch link led me to Business Insider, Henry Blodget's news-and-gossip site. BI's banker hanky-panky currently features Sir Fred Goodwin, ex-CEO of Royal Bank of Scotland.. Goodwin obtained a superinjunction barring the media from revealing his alleged affair with an RBS staffer. Like the French, the British like to keep such indiscretions quiet. Except in Parliament. There, members can talk about anything. And once they say it, the press can write about it.

The U.K. is the land of No Sex Please, We're British.What really disturbs them is the financing. How could Sir Fred, head of a bank that required a major government bailout, squander funds on promotions for his paramour?

Bankers below CEO level also should consider the financing of their hanky-panky. According to a survey, male bankers spend an average of $500-$600 per sexual rendezvous.

Wednesday, May 25, 2011

Try Safari if FireFox is acting up

The blog's header appears scrambled in FireFox, for some reason, but it looks and works fine in Safari.  Might be related to the fact that I've not updated the template, despite Google's entreaties.

Another heiress of the Gilded Age dies

Huguette Clark.

Interesting, the different paths these fortunes took.  No bankers involved in managing this one, just an attorney and an accountant, apparently.

Monday, May 23, 2011

“Obama Wants a Top Tax Rate of 44.8%”

Props to Representative Paul Ryan for pointing out that the effective top tax rate on income could climb significantly higher than 39.6%. Ryans's inclusion of payroll taxes in his calculations can be questioned, but you can't argue with the rate-raising effect of phasing out exemptions and deductions.

He's earned Glenn Kessler's Rare Geppetto.

Wellington Burt’s Trustee: Maladroit or Maligned?

Remember Wellington R. Burt's trust that skipped generations for 92 years? Saginaw County's chief probate judge has ordered full distribution.

It wasn't easy. Some 20 lawyers were involved in negotiating a distribution that sounds sort of per stirpes. "It gives larger amounts to those farther up the family tree who have fewer siblings."

Burt's curious desire to favor heirs he would never know over those he did has attracted considerable comment. Some question locking up an estate for so long. Others wonder why an estate valued at $40 million or more in 1919 is now worth only $100 million. Had Burt's fortune merely kept pace with inflation, it should be worth more like half a billion.

Was the bank trustee asleep at the switch? Or did the trust consist largely of business interests that crashed in the Great Depression? In the latter case the trustee may have conducted a heroic salvage job.

Friday, May 20, 2011

Billions and Trillions Illustrated

As of May 21, no need to worry about debt ceilings, government spending and tax revenue shortfalls.
But what if we won't get off that easy? Just in case the world keeps turning, refresh your understanding of the vast sums that billions and trillions of dollars represent:

How to Tell a Billion From a Million.

How to Tell a Trillion from a Billion.

Wednesday, May 18, 2011

Trusts (New Hampshire) vs. Insurance (Vermont)

New Hampshire vs. Vermont: People in Vermont wear funny sandals and talk about world peace. New Hampshire residents sell liquor at toll booths and drive without seat belts. The one thing they agree on is their dislike of Massachusetts. 

Now the two states are battling with financial services as weapons: trusts for New Hampshire, insurance for Vermont.

One Vermonter sees no risk in lightly capitalized "captive" insurance companies. Other commentators aren't convinced.

Astonishing Thought for the Day

From The Christian Science Monitor:

By 2022, those living in poverty will be a minority for the first time, as the global middle class – particularly from BRIC nations – surges.

The high-net-worth minority is growing, too. Hence the boom in global private banking.

Monday, May 16, 2011

Should the Prudent Investor Always Follow the Crowd?

Child: The other kids are doing it, why can't I?

Parent: Just because everybody's doing it, doesn't make it right.

Ron Lieber wants those overseeing 401(k) plans to think like the parent. See Why 401(k)'s Should Offer Index Funds.

Most plans – over 60 percent – don't yet offer a basic menu of low-expense index funds. Lieber offers a hypothetical example showing how that lack might cost an employee $100,000 or more over a working lifetime.

According to Erisa, 401(k) plans should be investing with the “care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”

As long as most company plans don't offer a basic menu of index funds, do the people overseeing Galactic Gidgets' plan have a fiduciary duty to offer their employees an index funds option? If  not, would that duty automatically kick in once a bare majority of other plans do offer such an option?

Friday, May 13, 2011

The Top 400 Taxpayer: Now You See Him . . .

The media often treat the highest-income taxpayers as members of an exclusive club. Some club! Most members get thrown out after a single year.

The Internal Revenue Service has now published data on the top 400 taxpayers for 17 years. Over that period, according to the latest report, all but 27 percent of the highest-income taxpayers have been one-year wonders. Most of their income is capital gain, usually from the sale of a business.

Robert Frank's Wealth Report cites that rapid turnover as evidence that the ranks of the rich change rapidly. Not necessarily. The taxpayer who sells a business for $500 million or Lake Shore high rises for $300 million is already rich. After the sale – and a one-year membership in the Top 400 Club – the taxpayer is only slightly less rich and much more liquid.

And a much better prospect for investment services.

Wednesday, May 11, 2011

Will Hedge Funds Go Psychic?

With the conviction of Raj Rajaratnam, the Greenwich hedge fund billionaire, trading on inside information has become a definite no-no. What alternative strategy can hedge funds adopt?  Here's a clue: On the hedgies' home turf of Greenwich and neighboring Connecticut towns, fortune telling in in such demand that a psychic turf war has developed.

There's no law against trading on future information, is there?

Tuesday, May 10, 2011

That's what I call a generation-skipping trust

Wellington R. Burt, lumber baron of Saginaw, Michigan, tied up his fortune in what we today would call a generation-skipping trust. His children received annual stipends of just $1,000 (about $12,000 in 2011 dollars).  The trust continued until 21 years after the deaths of two grandchildren, both living at the time of Burt's death in 1919.  As the last death occurred 21 years ago, the trust will be "opened" according to news accounts later this month.  Reportedly, teams of lawyers have hammered out a distribution settlement for the trust, which holds $100 million or so. By definition, the heirs will be people who never met the man, they were all born after his death.  What an odd legacy.  The smallest portion is over $2 million.

First of a four-part series on the story is here.

Interesting that the trust succeeded according to Burt's terms.  Rule against perpetuities satisfied, check.  Long before the advent of the generation-skipping transfer tax, so no federal tax revenues generation by this distribution, check. But what would have happened to Burt legacy had he shared the wealth with the next generation?  Might the Burt family be as famous as the Rockefellers or Kennedys?  Burt was, reportedly, the eighth richest American at one time.

Monday, May 09, 2011

The Global Wealth Management Market

The U.S. constitutes over 40 percent of the global wealth management market. Despite the rapid rise of wealth in China and elsewhere  – Australia could rank as a top ten market by 2020 – the U.S. will remain at over 40 percent. See Deloite's new study.

 Copyright © 2011 Deloitte Development LLC. All rights reserved

Friday, May 06, 2011

Are QTIPs Sexist?

Back when I kept up with estate planning trends, Qualified Terminable Interest Property Trusts were attractive to well-to-do men and women with children from a prior marriage. With a QTIP, one could take advantage of the marital deduction yet assure that trust assets remaining at the death of the surviving spouse would pass to one's children, not to the spouse's children or other relatives.

Haven't read Wendy Gerzog's paper, but the abstract Gerry Beyer posts at Super-charged power-of-appointment trusts asserts that QTIPs are sexist. Is it true that married women never, or almost never, use QTIPs in their estate plans?

Thursday, May 05, 2011

Martin Feldstein's Stealth Income Tax Hike

Martin Feldstein
Even when he served as President Reagan's economic adviser, Martin Feldstein was known as a spoilsport (we called them deficit hawks). Is the ploy for sharply increasing the federal income tax that Feldstein describes in today's NY Times op-ed Machiavellian enough to work? Same tax rates. Same deductions. Yet income tax revenue would jump by almost 30 percent and keep on increasing.

The secret ingredient in the fiendish recipe? A cap, equal to only 2 percent of adjusted gross income, on the amount by which deductions and certain exclusions could reduce a taxpayer's tax.
With the 2 percent cap, individuals would continue to benefit [sic] from all of their current deductions, exclusions and credits. It is the total tax benefit and not any particular tax reduction that is limited. 
The net result, says, Feldstein, is that most itemizers would suffer less by settling for the standard deduction.

Wednesday, May 04, 2011

Osama Bin Laden's Will

H/T to the Wills, Trusts and Estates Prof for calling our attention to Bin Laden's four-page will. One page is reproduced here.

Update: Didn't have time to read the articles linked above until this evening. Appears that the "will," if genuine, is a letter to Bin Laden's family. In any case, an Islamic Will can designate beneficiaries for only one third of an estate.

“Pot Trusts” Need a Corporate Trustee

In the recent post on funding the grandchildren's college educations with pot trusts, my first instinct was to delete this plug for a family trustee. After all, the sponsor of this blog has numerous corporate trustees as clients. 
How do you choose a trustee for a trust that will outlive you? Ms. Goldsmith typically advises parents to name a family member who isn't benefiting from the trust, such as an uncle or cousin, who can then hire a professional investment adviser if necessary.
I was wrong. The more you think about Ms. Goldsmith's suggestion, the better a corporate trustee looks.

Consider: With four years at Yale costing close to $250,000 – more if you throw in the BMW convertible every trust-funded student deserves – multiple millions will be required to fund college for all one's grandchildren, present and future.

Perhaps youngest son isn't even married yet. How many grandchildren might he produce with his first wife? How many more with his trophy wife?  The pot must be big, and it may need to be managed for a long time, half a century or more.

Suppose cousin Joe is the first trustee. How often will he change investment advisers? How will the changes impact the trust's portfolio, taxes and transaction costs?  At Joe's death, will his niece Jill take over? What investment advisers will she choose? How will she get on with the last few grandchildren, all seeking four-years-at-Yale money from a rapidly dwindling trust?

A pot trust needs a trustee schooled in long-term investing, experienced in dealing with young beneficiaries and clearly impartial (no BMW for Chris if Brittany has to settle for an Elantra.) Naming a corporate trustee really does sound like a no-brainer.

Full disclosure: This blogger and his immediate family own three Hyundais and no BMWs.

Monday, May 02, 2011

Watch Your Finglish!

Real people need to hear about stocks and bonds and diversification, not equities and fixed ncome and asset allocation. So suggests an Invesco survey featured by Brett Arends in the WSJ.

Ditch the jargon, in other words. "Solution," a word overworked throughout the business world, is a dud in finance – not only stale but lacking credibility. At best, an investment strategy cannot be more than a "possible solution."
Surce: The Wall Street Journal
After the Great Depression, Americans craved financial security. Merrill Anderson's first newsletter was titled accordingly. With boom times worries about mere security faded away. What goes around comes around: the craving for security is back.

Sunday, May 01, 2011

Remembering Louis Rukeyser

AP photo/Playboy Magazine
Louis Rukeyser, who attracted millions of Americans to Wall Street and investing, died five years ago this week. Though widely popular, his less-than-solemn treatment of the stock market on TV was not to every taste. See this Joe Nocera column. From my summers working on Wall Street, I recognized where Rukeyser found the program's distinctive, bantering voice. Brokers and analysts used it themselves as they tried out research recommendations and sales pitches (not mutually exclusive) on each other.
Too young to remember Wall Street Week? See the appreciation of Lou that Jonathan Hoenig offered last year. It includes a video clip where you can glimpse Lou chatting with that young hotshot, Peter Lynch.

Update: Let the record show that it was a woman, Anne Truax Darlington, who conceived the ridiculous idea that Maryland Public Broadcasting needed a program on … investing.