Monday, December 29, 2014

“Wealfie” or “Wealthie”?

Look! Me in the Ferrari I got for Christmas!

Look! Me with Sissie in her Yale dorm!

Look! Me in our private jet!

Conspicuous consumption is, well, conspicuous in much of the self portraiture known as the selfie. What should we call these social-climbing graphics? Wealthies or wealfies?

Earliest known example of the genre: Look! Me with Bernie Madoff! (Just kidding, I hope.)

Dave Barry: The IRS Finally Reforms!

From Dave Barry's Review of the Year in The Washington Post:
In Washington scandal news, the Internal Revenue Service, responding to a subpoena, tells congressional investigators that it cannot produce 28 months of Lois Lerner’s e-mails because the hard drive they were stored on failed, and the hard drive was thrown away, and the backup tapes were erased, and no printed copies were saved — contrary to the IRS’s own record-keeping policy, which was eaten by the IRS’s dog. “It was just one crazy thing after another,” states the IRS, “and it got us to thinking: All these years we’ve been subjecting taxpayers to everything short of rectal probes if they can’t produce EVERY SINGLE DOCUMENT WE WANT, and here we lose YEARS’ worth of official records! So from now on, if taxpayers tell us they lost something, or just plain forgot to make a tax payment, we’ll be like, ‘Hey, whatever! Stuff happens!’ Because who are we to judge?”

Monday, December 22, 2014

Wealth Inequality Illustrated

Don't remember what periodical's web site this screen grab came from. Wouldn't be polite to identify the source if I did. The contrast is striking: wealth survey rubs shoulders with homeless advocate.



As Beatrice Kaufman* said, “I’ve been poor and I’ve been rich. Rich is better!”

*Although the saying is associated with Sophie Tucker, the first recorded usage was by the wife of playwright George S. Kaufman.

Wednesday, December 17, 2014

Art in Lieu of Taxes: a Slide Show

This masterpiece by the Venetian Francesco Guardi,
 accepted in lieu of inheritance tax, now hangs in the Ashmolean.
From the estate of artist Lucien Freud,
this work by Frank Auerbach was worth 
£16.2 million in payment of tax.


Winston Churchill's paintings aren't the only ones to be used as a money substitute when paying UK death tax.

As this Telegraph slide show illustrates, many masterworks – and some not so masterly – have helped Brits and their estates meet outsize tax bills.

Could the UK "in lieu of" system work for the IRS? Would it be more workable of contemporary works of volatile or uncertain value were excluded?

Monday, December 15, 2014

Investable Assets Are National, People are Regional

Oldtimers remember when television was expected to homogenize the nation. (The oldtimers' parents had thought radio would do the trick.) Regional accents, customs and preferences were supposed to disappear, blending into a coast-to-coast "Americanism."

In reality, of course, regional differences are alive and well. Elizabeth Currid-Halkett of USC shows the significant variations in conspicuous consumption in this NY Times op ed.

For marketers of wealth management, the striking aspirational differences in  cities across the country deserve attention.

For instance, a New Yorker making a sales call in Minneapolis should not expect
his prospective client to be impressed with his Rolex. And a Dallas wealth manager wooing a Bostonian should not suggest that sending the kids to private school is a waste of money.

Saturday, December 13, 2014

James Brown's Disrespected Will

James Brown performing in Hamburg, Germany, February 1973.
This idea that you can just completely disregard the testator’s wishes is fine if we are going to live in a country where people don’t have a right to say what happens with their assets when they die.

– Virginia Meeks Shuman, Charleston School of Law

When the children and grandchildren don't like the terms of a will, things can get messy. The James Brown mess, The New York Times reports, is super sized. South Carolina seized his estate and wrote Brown a new will. The South Carolina Supreme Court overruled. Now what?

Friday, December 12, 2014

Prince William's Ancestor (an American) Detested British Nobility

William and Kate, that charming young couple, created quite a stir with their visit to this country. Americans love British royalty.

Well, not all Americans. When William and Kate married, we told the story of Frank Work, who would have hated having a prospective king of England as a great-great-great grandson. See The Royal Wedding's American Connection.

Saturday, December 06, 2014

How to Succeed at Investing Without Really Trying

How many articles offering basic advice to investors in stocks have been written over the last few decades? Thousands, for sure. Millions, maybe? Certainly Merrill Anderson's editors have contributed their share in our newsletters.

So how do you create yet another article on the subject and make it fresh and readable? Not easy. Morgan Housel does a notably good job in his Wall Street Journal($) column, 16 Rules for Investors to Live by.

I like Rule 1:
1. All past market crashes are viewed as opportunities, but all future market crashes are viewed as risks. 
If you can recognize the silliness in this, you are on your way to becoming a better long-term investor.
If you don't have access to the WSJ online, browse Housel's columns for The Motley Fool here. He's won the Best in Business award from the Society of American Business Editors and Writers twice.

Could the content on your web site and in your handouts benefit from sounding less pretentious, more like Housel?

Are Perpetual Trusts Unconstitutional?

Scene: divorce court.

Husband's lawyer: In the interests of a swift settlement, my client wants to be more than fair. He's willing to give his wife half his net worth of one billion.

Wife's lawyer: Not so fast. What about his other billion, the one he put into that out-of-state perpetual trust?

Judge: Interesting point. Since our state doesn't recognize forever trusts, I'm including the value of the trust in his net worth. That brings his total wealth to two billion. How does "One billion for her, one for him" sound to you?
Paul Sullivan devotes this week's Wealth Matters column to perpetual trusts. According to Robert H. Sitkoff, a professor at Harvard Law School, some may prove vulnerable to angry spouses or greedy descendants.

Tuesday, December 02, 2014

An amateur executor.

Maurice Sendak named as the executor of his estate a woman who had worked with him and taken care of his home for several decades.  He created a foundation which owns his royalties, and named the same woman, Lynn Caponera, as its president.  Ms. Caponera began working for Mr. Sendak at age 19, has no other work experience, and did not go to college.  However, she does have an intimate knowledge of his property, which includes rare books, and his life's work.

A controversy has broken out with the Rosenbach Museum and Library in Philadelphia, which had expected to be the permanent home of Sendak's papers.  Ms. Caponera instead plans to add a museum to Sendak's home, and open the grounds to the public.  Lawsuits are in progress.

Shades of Albert Barnes, who tried in vain to keep his eclectic art collection in his home and out of the museums of Philadelphia.  See "The Art of the Steal"  for the story of the 60-year effort to break the terms of his will, ultimately successful.

The comments to the NYTimes article are generally more sympathetic to Caponera than the article is.  The commentors have a charmingly naive belief that the terms of the will should be controlling, and they identify with Caponera's decades of loyalty.  Fortunately, Caponera has a committee to help back up her decisions.  But shouldn't Sendak also have named a corporate executor?

Monday, December 01, 2014

$116,273 Christmas Present

Illustration by Xavier Romero-Frias, via Wikimedia Commons
PNC has once again checked out the prices of gifts mentioned in "The Twelve Days of Christmas." This year, if you purchased each gift (one partridge, two turtle doves, etc.) each time it was mentioned in the song, you would have spent a total of $116,273.

Despite the Fed's effort to stoke inflation, that's only a 1.4 percent increase over last year.

Wednesday, November 26, 2014

Ready For a Santa Rally?

For investors in world stock markets, research reveals, "December has been, on average, around four times more profitable than the average month…. "

According to the table published by The Telegraph, the phenomenon is most pronounced in Japan. Alas, it's least evident in the U.S.

Monday, November 24, 2014

Rockefeller Family Office Is on the Move

The View from 30 Rock
Photo by 
André Lage Freitas via Wikimedia Commons
When I was a kid, occasionally my father would mention he'd dropped off a bookbinding job or picked up a check at the Rockefeller family's office. Wow! Who knew a family could have its own office?

The Rockefellers' office dates back to 1882. In 1933 it moved into the newly built 30 Rock. Now the family has found a better rental in an adjoining Rockefeller Center building. The New York Times marks the pending move with this salute to Room 5600. (The "room" once encompassed three high floors in what my father knew as the RCA building.)

The investment-management arm of the office, Rockefeller & Co, was spun off some years ago and now seeks business from outside the family. You'll find it at 10 Rock.

Friday, November 21, 2014

“The richest old generation we’ve ever seen”

By the time Depression Babies finished school, they had become The Silent Generation. They were relatively small in number, and that fact turned out to be their good fortune. In the post-WWII boom the supply of entry level jobs exceeded demand. Though housing prices seemed to be going through the roof (a house worth $8,000 in 1945 was selling for two or three times as much by 1960) homes proved to be a great investment. 

The result, according to Bloomberg Businessweek:  Generation Rich.

Bunny Mellon’s Awesome “Alternative Investments”

Sotheby's went all out to market the sales of Bunny Mellon's art, jewelry and home furnishings. The effort has paid off.

Mrs. Mellon's art sold for $158.7 million, well above estimate. Last evening the sale of her jewelry and other interesting objects began. Prices often exceeded estimates by two or three times.

An apple-tree brooch crafted for her by Verdura was estimated at around $3,000. It sold for $26,250.

Said to be even bluer than the Hope Diamond, her magnificent blue diamond pendent sold for more than twice its estimate, fetching $32,645,000. (Prices include buyers premium.)

Bunny Mellon, an heiress twice over, surely had a good eye for
valuable objects. But I bet she never bought for investment. The old advice about profiting from art and collectibles – buy and hold what you like – still applies.

Monday, November 17, 2014

What If Everyone Knew Your Net Worth?

You might be less inclined  to buy a Bentley,  and you might increase your saving and investing. The same applies for your wealth management clients.

Read Carl Richards column, which includes this napkin sketch:

Wednesday, November 12, 2014

Less Banking, More Wealth Management?

Fitch, the rating agency, has seen the future of U.S. banking. It's wealth management.
Wealth management, including advisor-based guidance and asset management, provides recurring sources of income and requires less capital usage than traditional bank loan products.  Wealth management services can strengthen and make stickier relationships with good customers, which tend to provide additional deposit funding, as well as opportunities for cross-selling a bank's core products, such as mortgage lending.

Wednesday, November 05, 2014

Can a Work of Art Be More Valuable When Not One of a Kind?

In the world of art and collectibles, rarity usually adds value. Uniqueness can be almost priceless.

Here's a contrary example: Giacometti's "Chariot," which just sold at Sotheby's for $101 million. The sculptor produced 'Chariot" in an edition of six, and in this case, Felix Salmon asserts, lack of uniqueness added value.

Monday, November 03, 2014

What Do the Wealthy Like to Read About?

Trusts. Trusts are a regular feature in Penta, Barron's magazine for readers worth five million or more. For example . . .

How to Bust a Trust, an introduction to decanting. Divorce Trusts, for situations where a prenup isn't in the cards. Incentive trusts, the conceptual pros and practical cons.

Note to trust marketers. Make sure your prospects and customers are well read: Ask about Merrill Anderson's newsletters.

Wednesday, October 29, 2014

Digital Wealth Management

Online investing is heating up.

Wealthfront just grabbed another $70 million in financing. Personal Capital raised another $50 million. Charles Schwab announced its own robo-advisory service.

Will the Boomers' children be the generation that abandons face-to-face investment services?

Monday, October 20, 2014

“The Father of Estate Planning"

Give a birthday shout-out to Charles Ives, the American composer born 140 years ago, October 20, 1874. Life insurance was Ives' day job, and when the federal estate tax came along, he realized there was a better way to sell insurance than to ask, "How much do you love your wife?"

The photo below shows Ives in 1913, the year the federal income tax was introduced. The federal estate tax followed in 1916, and two years later his most noted nonmusical work appeared: "Life Insurance with Relation to Inheritance Tax."


Friday, October 17, 2014

Paying Death Tax With Art

A beach scene by Winston Churchill
Winston Churchill's daughter Mary Soames died last June at age 91. To help pay her death duty, the estate has offered 38 paintings by her father.

Should our estate tax include a similar AIL (Acceptance in Lieu) scheme?

Wednesday, October 15, 2014

Mobile Video, Live-Banker Mortgages, Gunless Hunting


Fifty years is only yesterday or ancient history, depending on which ads from 1964 you look at.

Video on the run. In the 1950's Texas Instruments and an Indiana company developed a popular novelty: a little transistor radio. Sony took the idea and ran with it. Now Sony was taking the next step, a portable TV. (You thought mobile viewers didn't start falling off curbs until iPhones came along?)


Live-Banker Mortgages. Five decades ago, private banking aspired to meet the requirements of elite borrowers who didn't always fit the standard mold. Their needs would be evaluated and perhaps met by actual bankers wearing suits. Those days must seem long, long ago to Ben Bernanke, who couldn't talk a computer into refinancing his mortgage.


Gunless hunting. Men with guns were a staple of Chase Manhattan's nest egg ads. But times were changing. Wildlife needed conserving, some said. Chase responded by offering this new age hunter.

Friday, October 10, 2014

Slicing Up Art to Save Estate or Gift Tax

If a painting is worth, say, $4 million, what is a one-quarter interest in the painting worth?

$1 million? Not necessarily, at least not for transfer tax purposes. The Elkins case could prove a game changer, reports Paul Sullivan.

Taking advantage of deep valuation discounts for fractional interests isn't always easy. If you give each of your three children a quarter interest in your Van Gogh, each will be expected to take possession of the painting for one quarter of the year. An alternative method – spotlighted by Christies – might be to gift the art and rent back.
Big wins by taxpayers in estate or gift tax cases have a potential down side. Pressure mounts to "close the loopholes." Senator Sander's bill calling for a 65% estate tax also takes aim at minority discounts.

Wednesday, October 08, 2014

"Treat customers like humans, not as transactions. "

Seems obvious, but it's being cast as the key take-away from the Comcast debacle last summer.  Does the need to become accessible to customers across all communication platforms apply to wealth managers?

I was interested to learn that no one likes 1-800 numbers any more, due to their association with telephone trees and long wait times.

Tuesday, October 07, 2014

Estate Surtax Spreads to Non-Billionaire Estates

That proposed 65% tax plus surtax on billionaire estates seems to have trickled down. The bill Senator Sanders has introduced in the Senate calls for the 10% surtax to apply to estates over $500 million.

Half a billion here, a quarter billion there , , ,

Monday, October 06, 2014

Art As Toxic Investment

Damien Hirst, “Moxisylyte” (2011)
Hundreds of dot paintings from Damien Hirst's workshop are are now on sale at galleries worldwide. (You may remember Hirst's shark.)

Peter Schjeldahl, The New Yorker's art critic, offers potential investors a cautionary comparison:
Just as no law forbids the sale of bundled credit-default swaps on bundled subprime mortgages, no agreed-on aesthetic principle invalidates paintings that are churned out by proxy and then bid up at auction as fungible commodities.
Before their clients plunge into Damien's dots, wealth managers may want to suggest a nice conservative hedge fund.

Saturday, September 27, 2014

Thursday, September 25, 2014

A 65% Estate Tax For Billionaires?

While Republicans work to again reduce the top federal estate tax rate to zero, Senator Bernie Saunders counters with an even more unlikely proposal: an estate tax with rates ranging from 40% (for estates of $3.5-$10 million) to 65% (for estates over $1 billion).

Joseph B. Thorndike comments, "It’s one thing to ask rich people to pay more of the cost of government. It’s another thing entirely to tell those rich people that they are just too damn rich."

The estate-tax charitable deduction now allows wealth to stay in the family by flowing tax free into family foundations. To redistribute billionaire estates through taxation, the deduction would have to go. Can you see that happening?

Wednesday, September 24, 2014

University Endowments Record Double-Digit Returns

Yale's endowment recorded a 20.2% investment return for the fiscal year ending June 30, keeping up with the torrid pace set by the S&P 500.

Reported results from other university endowments:

Dartmouth, 19.2%

MIT, 19.2%

Penn, 17.5%

Harvard, 15.4%

Originally this post erroneously credited Dartmouth's results to Brown.

Friday, September 12, 2014

Background on the inversion mania

From the Tax Analysts blog, which I believe is open to the public. Key takeaway:

Here is the ultimate irony in the story: Investment bankers hired by a foreign multinational confronting acquisition by a U.S. corporation alerted the administration, the politicians, and the country to the imperatives of “economic patriotism.”
It was all part of AstraZeneca's defense against a hostile takeover.

Wednesday, September 10, 2014

It's Not Easy Being Fiduciary

The NY Times reports on the plight of two Deutsche Bank private bankers who were forced out because they balked at pushing DB products – notably, a fund of funds. (Funds of funds answer the perceived demand for investment products that carry even higher annual expenses than regular hedge funds.)

According to this petition to the Supreme Court of the State of New York – we don't have DB's side of the story – the two found "staying fiduciary" was a losing battle.

As big banks try to grow bigger, sales tends to overwhelm service. One result: a marketing opportunity for smaller, fiduciary-minded institutions. 

Thursday, September 04, 2014

Perils of Going Public, Performed Way Off Broadway

"Trading Practices," a participatory production performed in an old building on New York's Governors Island, dramatizes the rise and fall of a family business. The NY Times finds the show "resourceful, whimsical and wearing."

Too bad the production had to open this summer, just after the upheaval at a New England supermarket chain demonstrated that truth trumps fiction. (Rumors that a top tunesmith-lyricist duo has started work on "Market Basket, The Musical," could not immediately be confirmed.)

Monday, September 01, 2014

1954: So Near And Yet . . .

Sixty years ago Container Corp. was running ads featuring contemporary artworks. Some still look pretty cool. This one, for instance, with a portrait of Teddy Roosevelt by Joseph Hirsch.


By contrast, this 1954 Bankers Trust ad shows every one of its 60 years. A married woman with business judgment? Tax savvy? Foresight? Financial literacy? How unthinkable!

Give BT a little credit, though. It was willing to settle for a co-executorship.


Thursday, August 28, 2014

Market Basket: Main Street Beats Wall Street

A multibillion-dollar company fires its CEO, replacing him with two outsiders clearly less qualified.

Reason? a bitter, seemingly endless family feud.

Result? Astonishingly, a revolution, an upheaval that drew nationwide attention.

Market Basket's employees refused to work and took to the streets to demonstrate. Loyal shoppers boycotted the stores. Day after day and week after week, the company hemorrhaged millions.

Last night the revolt succeeded.  The fired CEO, Arthur T. Demoulas, is back on the job and will buy the 50.5% of the company that his side of the Demoulas family does not already own.

Arthur T. did a great job of building a debt-free company. Now we'll see if he can revive an indebted one.

The financial planning lesson
Back in Estate Planning 101, we learned the expected progression of a successful business: A small company grows, attracts outside capital and eventually goes public. Once the company's shares are publicly traded, family members who wish to liquidate their holdings can do so at a price set by the market. With luck, family members remaining active in the business retain a large enough minority interest to maintain effective control.

Maybe that's how it worked in the 20th century. These days, a company such as Market Basket could not long survive if its shares were publicly traded. Corporate raiders (sorry, "activist investors") would swoop in swiftly to maximize shareholder value.

A few businesses have managed to go public while maintaining family control, although Wall Street tends to resent the strategy. Why invest in, say, The New York Times Company, when shares available to the public have insignificant voting power compared to shares held by the family?

For the private investor, the answer may be that it's smart to own part of a company whose management is free to work toward long-term goals.  Mark Zuckerberg certainly values that freedom.

Related post: The Family Business Fight That Just Won't Stop

Wednesday, August 27, 2014

Good Advice From a 108-Year-Old Investor

Selling short helped Irving Kahn prosper in 1929. In the Thirties Benjamin Graham converted him to value investing.

 Here Kahn, age 108 and still investing, is interviewed by The Telegraph.

Tuesday, August 26, 2014

Is Investment Advice Too Expensive?

 After WWII, when the wealthier members of the Greatest Generation opened investment management accounts at a bank or trust, their annual expense was probably about 1.5% to 2% – half a percent as a management fee plus one percent or more in "full-service" brokerage commissions.

These days, investment management fees tend to be higher but, with luck, transaction costs are lower. Total annual running costs probably are about the same.

Could change be coming at last? Will relatively low-cost online services lead to a price war? As we suggested recently, not necessarily – at least not in the high-net-worth segment of the market. The sums multimillionaires pay for investment services don't seem so extravagant when you consider the cascade of fees they face when traveling.

This year, hotels will collect more than $2 billion from fees they tack on to their room rates. My favorite: a $25 fee for putting your own can of Coke to cool in the minibar.

By the time a high-net-worth investor returns home, he or she may see wealth management as a bargain.

Monday, August 25, 2014

What Does It Cost to Invest?

Someone has $100,000 to invest. What will it cost? Peter Dunn dares to tackle that complicated question here.

For more on investors' expenses, see An Emerging Price War.

Will the cost of investment advice actually decline? There's room for doubt. Like mental health therapists. investment therapists aren't selected on the basis of cost alone.

Saturday, August 23, 2014

A Plug For Revocable Trusts

Two morals may be drawn from this Wealth Matters column:

1. If you want to change your name, do it right. Otherwise your ability to exercise a power of attorney may be compromised.

2. Despite –and also because of – the popularity of durable powers of attorney, creating a revocable trust may be the more prudent way to go.

Thursday, August 21, 2014

Warren Buffett, Investment Marketer of the Year?

In his letter to shareholders last spring, Warren Buffett revealed that he had instructed his trustee to invest mostly in a very low cost S&P index fund. He recommended Vanguard's.

"in the five months that followed," the WSJ reports, "investors poured $5.5 billion into the Vanguard fund, or about three times more than during the same period the previous year."

Has indexing finally reached the tipping point and become the default way to invest?

Saturday, August 16, 2014

Better Wealth, Better Health

If you're willing to improve your financial future by contributing to a 401(k) plan, most likely you'll also take steps to improve your future health. See Your 401(k) is Healthy, So Maybe You Are, Too in the NY Times.

Michael Waraksa, a collage freak, put together this apt illustration for the Times story.

Monday, August 11, 2014

Private Bankers Are Not Fiduciaries

J.P. Morgan's investment specialists are held to fiduciary standards. Morgan's private bankers are not. Do private bankers push the bank's own funds when cheaper or better alternatives might be available? In recent months both the Office of the Comptroller of the Currency and the Securities and Exchange Commission have been investigating.

The WSJ story notes that Morgan's funds most often outperform their Lipper averages. And because the bank charges an extra 0.5% annually for holding outside funds, Private Bank clients may find Morgan's own funds less expensive.
See the SEC's page of advice for mutual fund investors here.

Thursday, August 07, 2014

Active Investing: The Happiness Quotient

On average, passive investing produces better returns than active investing. In a rational world, shouldn't active investors become extinct?

No. The economic benefits of active investing aren't limited to the net returns after fees, trading costs and taxes. While passive investing is as exciting as watching grass grow, picking stocks is interesting, challenging and sometimes even fun.

Thus, the benefits of active investing include the net return plus a happiness quotient.

A happiness quotient? The economic concept emerges in a cost-benefit analysis of smoking tobacco. Smoking's costs include increased risk of lung cancer and a shortened life expectancy. However, the estimated happiness benefit – the pleasure of smoking – offsets an estimated 70 percent of the cost. (Critics argue that the percentage is too high.)

In the context of investing, the economic value of the happiness quotient should be easier to compute. If hedge-fund investors settle for  an average return of 9 percent during a period when the S&P is returning 12 percent, the economic value of their happiness quotient must be at least 3 percent.

IRS targeting, by the numbers

NPR has reported on a tabulation by the House Ways and Means Committee staff of the excess scrutiny given to conservative groups by the IRS.  It's pretty damning.  The report is restricted to the "be on the lookout" identifiers that the IRS used.  Because the IRS had only one BOLO that might identify a liberal group ("progressive") the results might not be fully accurate. Liberal groups that avoided the term "progressive" in their names may or may not have been scrutinized closely, we have no information on that. However, 100% of the "progressive" groups sailed through, and no liberal groups complained.  In contrast, conservative groups were asked three times more questions, and fewer than half were approved.  Fifteen times more conservative groups were identified via the BOLOs than the liberal groups.

This affair has been referred to elsewhere as the "weaponization" of the IRS.  It is not a good development, and it's unfortunate that the IRS is stonewalling the investigation.

Monday, August 04, 2014

Cracking the Mystery of Modern Wealth

Say you're seriously rich, perhaps sublimely rich. Have you lost track of exactly what you own and what it's worth? Are you prepared to pay $50,000 or more to find out?

See Wealth Managers Enlist Spy Tools to Map Portfolios.

Note: when it comes to derivatives, private equity, venture capital, collectibles and other alternative assets, "exactly" can be a relative term.

Tuesday, July 29, 2014

Recommended Reading


How well do you understand financial talk? In this elite dialect . . .

"Credit" means debt

"Bail out" means putting money in

"Synergy" means sacking people

"Noncore assets" means garbage.

Monday, July 28, 2014

You're No Apple, You're a Bank

Happened on Heather Landy's last column for American Banker. Financial-services folks, she notes, seem fixated on emulating the success of Apple and Amazon.  That's not easy.
For example, while a focus on cross-selling makes perfectly good sense as a general business strategy, it doesn't hold up very well in an Apple business model context. Notice how when you visit an Apple store, nobody ever says, "Well, sir/ma'am, I see you have one of our phones. Have you considered trying one of our tablets?" There's no need to push products on us because we already know that we want them. We'll even line up around the block to get them. (Whereas a line around the block is never a good sign for a bank.)
Can banks develop a cross-buying culture? Can they give us new conveniences even more welcome than those smart credit cards the Europeans enjoy?

Can they create true wealth-management centers, units so innovative and quality-obsessed that customers clamor for the privilege of a referral?

We'll see.
Landy is leaving her post as editor in chief of American Banker Magazine to join Quartz as global news editor.

Friday, July 25, 2014

Repeal the Estate Tax, Again?

Republicans in the House may vote to eliminate the federal estate tax this fall, it says here. (Curiously, the bill would keep the gift tax.) Purpose: to position repeal as an issue with heft when the subject of serious tax reform finally comes up. 2017, maybe?

Who would benefit from repeal 2.0, other than techie billionaires and hedge fund managers? Farmers. 

"[W]e’ve seen farmers in Iowa or Illinois get $15,000 an acre for their farm," says Paul Neiffer, The Farm CPA. "If the farm is 1,000 acres, they are looking at owing taxes."

Thursday, July 24, 2014

From Ladies of Leisure to Women CEO’s

Sallie Krawcheck, in partnership with Pax World Management, is launching a fund to invest in enterprises with a better-than-average proportion of women in key positions.

What a difference half a century makes. Ladies of leisure like the ones depicted in these 1964 ads certainly didn't expect their daughters or granddaughters to be CEOs of major companies.


Wednesday, July 23, 2014

Philip Seymour Hoffman Didn't Want “Trust Fund Kids”

The actor rejected suggestions that he set aside funds for his children because he didn't want them to become spoiled brats.

He did want them exposed to art and culture, as suggested by an unusual instruction to the guardian of his eldest child:
“It is my strong desire [that] my son, Cooper Hoffman, be raised and reside in or near the borough of Manhattan [or] Chicago, Illinois, or San Francisco, California,” he said in the will.

Can Three-Second Trades Produce Long-Term Capital Gain?

With a ploy called "basket options," a hypertrading hedge fund claimed billions of dollars in tax savings. The Senate Permanent Subcommittee on Investigations seems impressed.

Thursday, July 17, 2014

What Do Women Want?

"I never met a SRI investor who wasn't a woman," said a broker quoted somewhere recently. An exaggeration, of course.

More generally, the question of how women approach investing remains perplexing, especially to men. We know that women, on average, tend to be more conservative than male investors. And because they don't believe they know it all, women investors tend to be more successful.

M. J. Dunleavey, remembered on this blog from her years with The New York Times, tries to offer clues to what women want in her WSJ column. For instance, women like to ask questions of their investment advisers, but they also feel under time constraints. Lots of questions but no time for answers?

Wall Street will continue to wrestle with the question of how to relate to women. Funny thing, though – none of the women trust officers, brokers and investment advisers I've met over the years ever felt it necessary to ask me what men want.

Tuesday, July 15, 2014

In Deluge of Funds, Investors Sink or Swim

No wonder people find investing bewildering. The mid-year report on mutual funds in The New York Times contains page after page after page – ten pages in all – of mutual fund listings. If printed in type big enough to read, the listings would have covered 12 or 15 pages.

For the would-be investor, this sea of funds must be a daunting sight.

Yet it used to be even scarier. After cresting above 8,000 before the Great Recession, the number of mutual funds has eased off. Jack Bogle estimates that 7 percent of equity mutual funds gave up the ghost each year from 2001 to 1012.

Even so, more than 7,000 mutual funds are still operating.

And that's not all. Joining the thousands of conventional load and no-load funds are about 1,600 exchange-traded products, primarily ETFs.

In part the deluge of funds is an optical illusion. Sizable segments of the mutual fund listings consist of house funds – products intended for customers of a bank, brokerage or insurance company. Other funds may be moribund relics of faded hopes or failed algorithms.

Likewise, most exchange traded funds (or "products," to use the umbrella term) are lucky to get their names in the paper. Of 1,600 funds, a mere 241 hold almost 90 percent of the assets.

Perhaps the deluge of funds indicates the need for investment advisers, although fund-picking is no easier than stock-picking.

Or perhaps the deluge is driving bewildered investors toward online services that offer simple portfolios of a few basic ETFs.

What do you think?

Tuesday, July 08, 2014

Happy 125th Birthday, WSJ!

The Wall Street Journal was first published July 8, 1889. The first issue reported the average daily price movement of twelve active stocks, the original Dow Jones Industrial Average. (Update: I wrote in haste; this predecessor average led to the first DJIA in 1896. Only one charter member of the Dow remains: GE.)

Monday, July 07, 2014

Chase Nest Egg Ads: the Cliche and the Exotica

Imagine you're a Mad Man in Sterling Cooper's early days, the 1950s. Your client needs photos of individuals engaged in off-duty pursuits that appeal to the moneyed class.

"Golf, of course," you say.

"Forget golf. Too obvious. Think of something that's not a cliché."

Most likely, that's why none of the Chase Manhattan nest egg ads we've shown you over the years has included a golf club.

By 1964 the ads were in their post-classic phase. Most every upscale pastime involving wind, water or wildlife had been portrayed. So we come to the last resort:


A more characteristic nest egg ad from 1964 was this, featuring a Charolais calf. Imports of this prized French breed had been banned since the 1940s for fear of hoof and mouth disease.


Triumph of the Target-Date Funds

You read it here, five summers ago: Because needs and intentions differ for people reaching retirement age, target-date funds may not find much of a market.

Ha! Needs and intentions do differ, but target-date funds are on a roll. These auto-managed portfolios already hold about 20 percent of 401(k) money, and they're attracting more than 40 percent of the new funds flowing into 401(k) plans.

Target funds will maintain their momentum, Barron's predicts (subscription required, but I accessed the article via a Google search).
Looking out five years, target-date funds may be the only investment that most Americans have in their 401(k) plans. That would be quite an achievement for a product that was barely known just a decade ago. 

Sunday, June 29, 2014

Supreme Court Gives Active Investing a Boost?

Companies that issue significant "misstatements" may claim "no harm, no foul" because the stock market isn't always efficient.

In reaching this conclusion, Jeff Sommer of The New York Times notes, the Supreme Court was influenced by Robert Shiller, Yale's Nobel Prize economist.
Investors may continue to rely on the efficient-markets hypothesis in forming class-action groups, and may assume that share prices reflect corporate misstatements. But corporate defendants may now try to prove in specific cases that there was no connection between their statements and price movements. 
Perhaps active investing, a pointless activity were the market truly efficient, isn't dead yet.

Saturday, June 28, 2014

Indexing 2.0: Smart Beta

On average, monkeys throwing darts at the stock listings could outperform most investment managers. Actually, Barron's notes, they can do even better. They can beat the S&P 500.

Reason: the monkeys are assumed to invest an equal number of dollars in each stock they hit upon, regardless of market capitalization. Equal weighting seems to produce better returns. 
[T]he S&P 500 Equal Weight index has returned 9.1% a year over the past 15 years, beating the S&P 500 cap-weighted index by a whopping 4.6 percentage points a year.
Inspired by the monkeys, so-called smart beta investing has produced an expanding list of quasi-index funds not weighted by market capitalization. The more sophisticated models sound a lot like automated stock picking.

Does smart beta investing have legs? Whether passing fad or significant trend, Paul Sullivan's renaming seems appropriate:
[A] better, if less marketable way to think about smart beta might be to call it “lazy alpha”….

Friday, June 27, 2014

Cornelius Freel’s Will

Why did C. E. Freel leave Long Island for Paris in 1892? Why did he leave his estate to an English bishop? We don't know. We only know this item appeared on the front page of the January 1, 1893 issue of the Brooklyn Daily Eagle.


Thursday, June 26, 2014

The Greatest Generation: Tax Division

Headlines such as IRS Official Sought Audit of GOP Senator suggest the potential of tax audits as a political weapon. It certainly isn't a new idea. In 1971 President Nixon tried to turn the IRS loose on his political enemies. When the IRS Commissioner, Randolph W. Thrower, refused, he was fired.

Thanks to those famous White House tapes, we know exactly the characteristics Nixon desired in Thrower's replacement:

“I want to be sure he is a ruthless son of a bitch, that he will do what he’s told, that every income-tax return I want to see I see, that he will go after our enemies and not go after our friends."

The man chosen, recommended by Attorney General John MItchell, was Johnnie M. Walters, a World War II Air Force navigator who had flown over 50 combat missions, then serving as assistant attorney general for tax policy.

Walters moment of truth arrived on September 11, 1972. John Dean handed him Nixon's "enemies list," with instructions to make the 200 names IRS targets. My boss, Dean told Walters, doesn't like somebody to say "no."

Walters did not obey and, like Thrower, he was fired. 

Johnnie Walters died this week at age 94. Read his New York Times obituary here.

Saturday, June 21, 2014

My Inheritance From the U.S. Treasury

From today's e-mail:


As usual, English is not the scammer's first language. The copyright symbols are a novel touch.

Speaking of attempts to defraud your obedient blogger and other elders, the New Hampshire legislature has just voted to criminalize elder financial abuse.

Sunday, June 15, 2014

1964: The Ladies Who Invest



Of all the ads The Merrill Anderson Company created for U.S. Trust, this message from half a century ago probably was the most off beat.

Does the headline strike you as sexist or condescending? Remember that Betty Friedan's The Feminine Mystique had appeared only a year earlier, in 1963.

U.S. Trust was entitled to boast about advertising to women back in 1864. At that time married women in New York State had been allowed to own and control property for less than 20 years. (More on the evolution of laws granting property rights to female U.S. citizens here.) Most likely, women during The Civil War were compelled to take on more responsibility for family wealth.
For all his copywriting skills, the founder of The Merrill Anderson Co. was not noted for his sense of humor. Wish I knew whose idea it was to sneak the dozing businessman into the illustration. 

Friday, June 13, 2014

Bill for Settling Leona Helmsley's Estate: $100 Million

Settling the $5.4 billion estate left by Leona Helmsley had its challenges, according to this Daily News dispatch:
The four executors who filed their request in Manhattan Surrogate's Court were two Helmsley grandsons, Walter and David Panzirer, her longtime attorney Sandor Frankel and friend John Codey. [A fifth executor was Leona's brother, now deceased.] 
According to court papers, the executors quietly sold off $2 billion in government bonds, handled her interests in more than 80 properties — including the Empire State Building — and dealt with her financial stake in five corporations and 27 businesses. 
In addition, they convinced a judge to trim the $12 million bequest from Helmsley to her dog Trouble to $2 million and sorted out a dicey challenge to her will by a pair of disinherited grandkids.
For completing those tasks and more, the executors request a fee of $100 million.

“Don't I have to leave my children equal shares?”

Of course not.  A parent may leave one child more than other children, or less, or nothing.

In real life, that estate-planning fact strikes many people as unfair. As this blog post points out, an educated person may not even realize she can leave one child more than she leaves to another.

Holland & Hart's  Fiduciary Law Blog is cleanly designed and clearly written. Admirable. (Must be the mountain air!)

Thursday, June 12, 2014

Good Night, Poor Harvard

As an investment manager, are you just average, maybe a bit below average? Take heart. You still beat Harvard.

For the five years ending last June 30, the annualized investment return for Harvard's endowment was 1.7%. No Ivy League institution did worse.

Jane L. Medillo, the endowment's manager, will leave at the end of the year. She once worked at Yale, where David Swensen for many years achieved remarkable investment results. Lately, not so much. For the five years ending last June, Yale's endowment had an annualized return of 3.3%.

Wednesday, June 11, 2014

From the Databank: Millionaires and Billionaires


1.1 Million
Number of new millionaire households in the U.S. last year, as estimated by Boston Consulting Group.

7.1 Million
Total number of millionaire households in the U.S.

16.3 Million
Total millionaire households worldwide.

32
Percentage of wealth that Americans with more than $1 million are holding in cash, according to State Street's Center for Applied Research.

50
Number of new names on Forbes latest list of U.S. billionaires.

492
Total number of U.S. billionaires.

1,645
Total number of billionaires worldwide.

Tuesday, June 10, 2014

The Biology of Risk

This Sunday Times column got a lot of attention by revealing why investment advisers can't truly measure their clients' risk tolerance … and why the Fed might do Wall Street a favor by becoming less transparent.

Sunday, June 08, 2014

The Great Divider: Student Loan Debt

Young (and not so young) Americans now labor under $1 trillion in student loan debt. As the Washington Post's Michelle Singletary writes, a good start in adult life now seems a privilege of the debt free:
The burden is so heavy that many households headed by young adults with student loans lag significantly behind their peers in wealth accumulation, according to an analysis by the Pew Research Center. The gap is wide. College-educated young adults with no education loans have about seven times the net worth ($64,700) than households carrying debt ($8,700).
Thirty-seven percent of households headed by an adult younger than 40 have some student debt — the highest share on record, Pew found.
Give a shout-out to parents and grandparents who dig deep to help students graduate debt free. And add a nod of appreciation to the wealth managers who help them do it. 

Tuesday, June 03, 2014

Philanthropy First, Family Estate Planning Later

H/T to Gerry Beyer for sending me to Estate Planning for the Young, Rich and Childless.

Rich young techies aren't so concerned with conserving their millions as family legacies, Reuters suggests. Future kids and grandkids will be well provided for, no doubt. Meantime the young rich are willing and eager to set something aside for philanthropy. Through donor-advised funds, for example.

Fewer millions for younger branches of the family tree isn't necessarily a bad thing. The continuing Disney family feud, summarized here a few years ago and now here, suggests that leaving grandkids $1 million a year can be counterproductive. They or their relatives get hungrier and hungrier to devour the goose that lays those golden eggs.

Thursday, May 29, 2014

Interesting times

Even as the S&P 500 touches new highs, the Commerce Department has just reported that the economy shrank 1% in the first quarter.

How can stock market prices grow so much faster than the economy?  In the long run, they can't.

Bad winter weather has been identified as the culprit behind the contraction, the first in three years. Unusual cold through most of the country was attributed to global warming.  Inventory adjustments were also fingered as a contributing factor.

Another quarter like the first, and we're back in a recession—which many Americans believe we never left.

Wednesday, May 28, 2014

Trust and Investment Ads From 25 Years Ago

This blog has displayed numerous financial ads from the 1960s, the Mad Men era. Here are three from just 25 years ago.

Buy a mutual fund from Xerox? In 1989 you could. (Van Kampen's founder pioneered insurance coverage for tax-exempt bond funds.)


How do you appeal to he-man investors yet gain cultural creds? In 1989 Merrill Lynch pulled off the double play by sponsoring a Frederick Remington exhibit.


US Trust was struggling in the 1980s, but the trust company wasn't going to let people forget its impressive heritage. "Multi-generational financial counselling is nothing new at U.S. Trust. We've been doing it for nearly seven generations."


Great changes have reshaped financial services in the last quarter century. Each of the three advertisers above has changed hands. US Trust was acquired by Charles Schwab, then sold to Bank of America. Merrill Lynch, of course, also became a Bank of America brand. Van Kampen eventually passed to Morgan Stanley and was sold to Invesco in 2009.

Monday, May 26, 2014

Understanding Taxes In Three to Five Minutes

Microsoft co-founder Paul Allen and filmmaker Morgan Spurlock ("Supersize Me") have teamed up to produce 20 short films on the economy. Intended to reduce Americans' economic illiteracy, the three-to-five-minute films will be released via the Internet and on-demand services this fall.
“Accessible and digestible, that’s what we’re going for here — a very creative, informative short film about taxes, for example,” Mr. Spurlock said.
Fortunately, taxes really aren't that complicated, as Will Rogers explained:

"The only difference between death and taxes is that death doesn't get worse every time Congress meets."

Friday, May 23, 2014

The Money-Managing Prince Who Made the Rolling Stones Rich

Keith Richards described Prince Rupert zu Loewenstein-Wertheim-Freudenberg, Count of Loewenstein-
Scharffeneck, this way: “He is a great financial mind for the market. He plays that like I play guitar."

The unlikely money manager to rock-and-roll royalty died at age 80 last Tuesday in London. Read a Brit tabloid tribute. The New York Times obit is here

Thursday, May 22, 2014

What's the Estate Tax on a “$4.8 Million” Madoff Account?

Many Madoff investors lost their shirts. Some didn't. As you'll read here, death has led to tricky estate tax questions.

Through a personal pension plan, in 1992 Bernard Kessell started investing millions with Bernie Madoff. Kessell died in 2006. Madoff's firm told Kessel's executor that the date of death value of the account was more than $4.8 million. That value was reported on Kessel's federal estate tax return.

After Madoff's massive Ponzi scheme was exposed in 2008, Kessel's estate filed an amended return valuing the Madoff account at zero and claiming a refund. The IRS balked. Now the question of value has gone to Tax Court.

In a way, Kessel and his heirs were lucky. Before the roof fell in, they were able to withdraw more than he had invested. But not really so lucky. The Madoff trustee has sought to claw back such faux profits, using them to reimburse Bernie's less lucky investors.

What was the true value of Kessel's Madoff account? Apparently the Tax Count will have to decide.

Sunday, May 18, 2014

Retirement Investing is Personal

From Dueling Strategies for Your Retirement Funds:
For anyone approaching retirement, an important investing question is: Should your strategy be "to" or "through"? *** 
The "to" refers to preserving savings for an expected retirement date; the goal is to get "to" that date without last-minute harm to your nest egg. Generally this means cutting back sharply on riskier investments—namely stocks *** 
A "through" strategy means tilting a portfolio to keep increasing savings well into, or "through," retirement. That means higher allocations to stocks and other riskier investments despite a bigger risk of losses.
The strategies aren't dueling. As we discussed five years ago, different retirees have different goals. See The Trouble With Target Date Funds.

Thursday, May 15, 2014

Thomas Jefferson Considers Gifts to His Grandchildren

Poplar Forest, a plantation Jefferson inherited at his wife's death, was a significant source of income. In 1805 he wrote to his Poplar Forest estate manager:

“The time is now approaching when I shall wish to be parceling off some of my lands to my grandchildren. This renders it necessary that I should understand the separate value of each portion of them distinctly. As no person is so well acquainted with them as yourself, I must ask a favor of you to consider the questions on the paper enclosed, and to write at the end of each the answer in figures, and to send me the same paper to Monticello, by the first post.”

The previously unknown letter is now for sale.

In that same year of 1805, Jefferson began work on this octagonal house.

 Poplar Forest
Photo via Wikimedia Commons

Photos of Huguette Clark

Published by Huffington Post, taken from a new biography of her.